Cagamas launches Asias first Islamic RMBS

Cagamas securitizes government''s Islamic home financing.

Malaysia's state mortgage company, Cagamas, has launched Asia's first rated Islamic residential mortgage-backed security (RMBS) with a six-tranche M$2.05 billion deal via lead managers HSBC, ABN AMRO, AmMerchant Bank and CIMB.

The first tranche carrying a three-year tenor was initially marketed to investors at 32-37bp over MGS, the five-year tranche at 50-55bp over MGS, the seven-year at 51-56bp over MGS, the 10 year at 54-59bp over MGS for the 10 year and 70-75bp for the 12-year and 15-year. The guidance was tightened by 5bp across all tenors as investor demand grew.

At final pricing, most of the tranches priced in the mid-range of revised guidance. The AAA-rated deal priced as such:

The three-year M$250 million tranche priced to yield at 3.41% or 30bp over MGS. The five-year M$215 million tranche priced at 48bp over MGS. The seven-year M$260 million priced at 49bp over MGS. The 10-year M$515 million priced at 53bp.The 12-year M$410 million priced at 68bp.And the 15-year M$400 million limited pass-through tranche priced at 73bp. Fess were said to be competitive but fair.

The order book took in M$13.5 billion in orders - accounting for an oversubscription of six-and-a-half times. The deal attracted a strong domestic following, with Malaysia accounting for 70% of the total 81 accounts. By investor type, financial institutions claimed 42%, government pension funds took 26%, asset managers took 13%, insurers accounted for 16%, while cooperatives took 2%.

The deal is a Musyarakah Islamic structure, meaning that owners of the notes share a percentage in the profits of the trust venture. The underlying security of the deal consists of 37,264 Government Staff Islamic Home Financing Loans worth M$2.84 billion. Of the outstanding loans, 99.6% are still serviceable through Islamic staff accounts, with the remainder being serviced via the GSIM pension fund.

Cagamas is a particularly attractive credit for the international market as it promises a rich pipeline of deals - its RMBS program will be backed by mortgages brought from the ministry of finance, which is estimated to have about M$24 billion of such loans that it is keen to offload.

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