Bumiputra Commerce Finance (BCF), the car hire purchase arm of Malaysia's second largest banking group Commerce Asset Holding, has completed the country's first securitization of auto loan receivables. Commerce International Merchant Bankers (CIMB), itself a unit of Commerce Asset, acted as lead manager on the M$510 million ($134.2 million) transaction.
The deal, launched through the Auto ABS One special purpose vehicle, securitizes a pool of around M$545 million car loans.
In some ways it is surprising that it has taken so long to see a Malaysian auto loans deal, given that the Securities Commission (SC) issued the guidelines for securitization two years ago. There has been huge growth in the car hire purchase market in the last two years and in June last year, the total value of transport vehicle loans was M$52.95 billion, up from M$36.66 billion the year before.
However, the SC has been somewhat conservative in giving the go ahead for ABS deals. This has caused most of the securitization deals issued so far in Malaysia - and there have been relatively few - to take around six months to complete, compared to under three months for domestic Korean deals. It can be reasonably assumed that the SC is even more cautious with securitization of new assets, especially with something like car loans, as the historical performance record does not go far back in Malaysia.
That approval was granted in late December, and both CIMB and BCF have spent the time since convincing local investors of the merits of the deal.
The deal was split into three tranches, all of which were rated AAA by Malaysian Rating Corp. The M$190 million three-year notes offer investors a coupon of 4.25%, an 82bp premium on the current 3.426% average coupon for triple-A rated corporate bonds of the same maturity, as calculated by Bank Negara. In addition, the coupon on the M$195 million of 4.5-year bonds is 4.50%, a pick-up of 64bp, while the M$125 million 6.5-year tranche pays 5.00%, a 70bp spread premium.
On the face of it the pricing looks pretty generous, yet a more appropriate price comparison might be to previous Malaysian transactions. The first few domestic deals issued in 2001 priced at similar levels to BCF, but struggled to attract interest largely because investors thought the pick-up was not sufficient to justify buying a product they were unfamiliar with.
As a direct result of that, bankers involved in two successful deals issued in 2002 - Sunway City's M$450 million commercial mortgage backed securitization via Deutsche Bank in October and Affin Bank's M$1 billion collateralized loan obligation via Nomura the following month - admitted to pricing the deals at significant premiums. Sunway's five-year bonds offered a 5.25% coupon, with the Affin deal just 5bp inside that.
The logic to the strategy was to get investors interested and make them comfortable with securitization structures. Only once this was achieved, it was reckoned, could you start to try and price more competitively with corporate bonds.
It seems surprising that such significant price tightening could happen in such a short space of time, but CIMB says that the pricing on Auto ABS One is just a reflection of strong investor sentiment. The bank adds the deal was 1.5 times oversubscribed, with 54% of the bonds placing with funds, 36% from banks, 6% went to private banking clients and the remaining interest came from corporates.