Debtdomain aims to corner secondary loan market

Debtdomain has set out to create an online exchange for the secondary loan market in Asia and Europe. talked to Chris Chen, an executive director of the company.

Q: What service do you provide?

A: We allow banks to close loan deals very efficiently through our internal template systems. We also provide a dynamic database list to enable banks to manage their portfolio, creating watchlists and listing what they are looking to sell and what they are hoping to buy. The system itself also creates trade settlement document. All procedures are automatically taken care of without additional human intervention.

Q: What advantages does the system have over current methods?

A: Different banks and different areas within banks have different perspectives and priorities. Corporate bankers and loan syndicate managers require access to the secondary market, but for different reasons. The current situation is that the only way banks can sell loans in the market is by picking up the telephone and talking to the bankers and brokers they know. As soon as you pick up the telephone you do two things – you disclose your identity and you tell people whether you are willing to buy or willing to sell. That in itself creates inefficiencies.

Q: Why is anonymity important?

A: You may wanted to create more room for new loans – say for example you have already reached your lending limit – but you are willing to do more business with your customers. A rival bank might actually tell the treasurer of that company the bank you represent is selling down their loan – the bank is not supporting them any more.That sort of thing can be pretty sensitive and that’s why a lot of banks do not want to enter into the secondary market at the moment .Banks really only now enter the market for two reasons: one is to buy or sell those loans which are very liquid and the second is to sell distressed loans – loans they don’t want to see again that have already been fully provided for on their balance sheets.

Q: What sort of loans do you expect will be traded on Debtdomain?

A: The system will enable people to more efficiently execute the more bog-standard buying and selling. If you can get rid of the boring, laborious and time-consuming things then you can concentrate more of your time on selling the things which have a more complicated story to tell. It will enable you to manage your time more efficiently.

Q: What fees do you charge on successful transactions?

A: Very, very modest. Normally, the transaction fee is lower than the transfer fee you have to pay to the agents to transfer the loan. It depends upon the maturity of the loan and the complexity of the credit. For a par trade, with the debt at or close to 100% of face value, you are talking about 0.25 basis points for both the buyer and seller. In real money terms, if you have a $5 million transaction, it will cost each party $125; that is very reasonable. The transfer fee would be in the region of $500 to $1,000.

Q: How do you ensure you are not cut out of deals where the transacting parties have to communicate directly?

A: We have a double blind email system which enables the seller and the buyer to communicate with each other – asking questions relating to the underlying credit. In some ways it’s a better system because you have your questions and answers properly documented.

Q: Debtdomain's exchange went live in June. How many loans have actually been traded since then?

A: No loan has actually been sold through the system as yet. We have in the region of 20-odd banks actually signed up and this number is approaching 30 now. When we launched in June it was the beginning of the summer holiday so inevitably things were quiet. We have done a lot of marketing. We have seen over 300 banks in Hong Kong, Singapore and London.

Q: Why do you think it is no deals have been executed as yet?

A: This is a market that is just beginning to develop. It is like the stockmarket 20 years ago. Twenty years ago, you would have picked up the telephone, rang your broker and placed your order to buy or sell and now everything can be done at your screen. Similarly, the bond market 10 years ago was conducted via brokers and trades [and] can now be executed over the internet. In the long run, the pure intermediary loan brokers are not going to have a such an advantageous position in terms of doing the plain vanilla buying and selling.

Q: You are targeting both Asia and Europe; regions in which loan documentation is based upon English law. How big are the secondary loan markets in these areas?

A: In Asia we would say it is around $8 billion this year. Probably for the whole world it is slightly in excess of $140 billion, of which Europe is around $30 billion.

Q: Does Debtdomain require further financing?

A: We are talking to a number of strategic investors with respect to moving the business forward. We don’t have an immediate need for funding requirements, but the way to move forward involves getting the right partners on board.

Q: Have there been any alterations made to the site since you launched?

A: Three months after launch, we are already on version four of the system. If you consider our site is like a toolbox – initially you put in the most basic fundamental tools and then you put in some additional tools that are more sophisticated so the user can benefit more.

Q: Do you yet have credit rating information on the site?

A: At the moment we do not have credit agency rating information per se in relation to the underlying credit, but we are in discussions with various content providers in terms of doing things together.

Share our publication on social media
Share our publication on social media