Delay to Philippine rail securitization

New closing date of March 26 set as members of MRTC consortium fail to sign documents on time.

Despite being priced over a fortnight ago, the closing date for the $175 million securitization of equity rental payments received by the Metro Rail Transit Corp. (MRTC) in the Philippines has been delayed by another two weeks, with key documents still to be signed.

Initially, the consortium of seven companies that make up the MRTC - Allante Realty and Development Inc., Anglo-Philippine Holdings Corp, Ayala Land, DBH Inc., Fil-Estate Management Corp., Greenfield Development Corp. and Ramcar Inc. - had pressed lead-manager HypoVereinsbank to get the deal closed by March 7, having been launched on the February 15.

According to some observers, this put Hypo under considerable time pressure. As the first international ABS deal out of the Philippines since a $75 million air ticket receivables deal by Philippine Airlines in 1997, the bank wanted to give investors, particularly local buyers, as much time as possible to get to grips with the structure of the deal.

Hypo also decided to release pricing details of the bonds earlier than might normally be the case, in order to give those investors time to assess the value of the transaction and to get necessary regulatory approval. In the case of domestic insurance companies, this was especially important, as they are not allowed to buy bonds unless they get the thumbs up from the Philippine Insurance Commission, which was granted for this transaction.

With everything seemingly in place, and Hypo stepping up its efforts to place the bonds, it is believed that some members of the consortium then decided they needed more time to be comfortable with the documentation, resulting in the delay to closing.

"When you are dealing with seven clients on one transaction, you have to accept that there might be a few administrative issues, especially when none of those parties is keen to play second fiddle," comments one banker. "Perhaps they did not realize the potential repercussions of not signing on time, but I am sure they'll now know they cannot delay the deal a second time."

FinanceAsia understands that representatives from Hypo are due to fly to Manila in the next couple of days to stress to the consortium the seriousness of the situation. With ratings secured from both Fitch and Moody's, and around 50-55% of pre-orders secured (from investors who will have their own deadlines), the bank will not want to keep them waiting much longer.

It is now thought a new closing date has been penciled in for March 26, and it is quite possible that the transaction may be re-priced. "I guess that they (Hypo) will have been in constant talks with the investors already on board to assure them that they will not be disadvantaged in terms of pricing by the delay," adds another observer. "So the pricing may have to be readjusted slightly to make sure no-one is going to be worse off."

When pricing was originally announced, the five-year piece, rated at the sovereign level of BB+/Ba1 by Fitch and Moody's, which carries a nominal coupon of 9.50%, was priced at 99.922% to give a nominal yield of 9.52%.

The second tranche consists of seven pieces with maturities ranging from six years to 12 years, and was also rated at the sovereign level by both agencies. The zero coupon bonds were priced at a significant discount and offer yields ranging from 10.62% for the six-year notes to 12.40% for the twelve year bonds.

Finally, there is a third zero-coupon tranche. Although these bonds legally mature in 2025, amortization begins in 2015. They were also priced at a discount and offer a yield of 13.17%.

If there is a positive for Hypo, it is that they will have more time to try and place the deal. Some of its senior bankers are currently in New York to speak to potential US buyers looking to get their hands on high yielding paper from emerging Asia, as well as assuring the ones that have already placed orders that the transaction is safe.

On the face of it, the transaction is an ideal introduction for the domestic investors unfamiliar with securitization structures or foreign buyers wanting to get exposure to the Philippines. The underlying receivables - equity rental payments received by MRTC for the construction of a 16.8-kilometer railway that runs over the EDSA highway in Metro Manila - are secure under a 25-year build-lease-transfer agreement signed in 1999 between MRTC and the Department of Transportation and Communication.

The contract, effectively a government guarantee, ensures MRTC a certain amount of revenue from the project, regardless of the number of passengers using the railway. Construction was completed in June 2000.

It is important that the deal succeeds. With the Philippines ABS Law close to being passed, the immediate prospects of a domestic market developing might be affected by a negative response to this transaction, as might the possibility of seeing more cross-border deals emerging in future.