HSBC closes its first Singapore securitization

Singapore''s best-performing Reit raises $195.5 million through CMBS.

CapitaMall Trust has closed a securitization offer to fund the acquisition of a new property in Singapore. The $195.5 million raised from the deal, which is issued through the Silver Maple Investment Corporation medium-term note programme, will help the real estate investment trust, or Reit, pay for the Plaza Singapura shopping mall.

The deal was initially marketed to investors at a coupon of 32bp to 37bp over Libor; punchy pricing given that the last CMBS deal out of Singapore - a $340 million offer from CapitaLand - sold at 45bp. Although the assets in that deal were less attractive, offices rather than prime shopping malls, most securitization professionals reckoned that HVB had done a good job.

But according to HSBC, which arranged the deal, investors placed $1 billion of orders, leading the offer to eventually price at the tight end of the expected range. In total 20 investors bought the bonds. Some rival bankers expressed surprise, and indeed scepticism, at the reported size of the order book but none doubted that CapitaMall is capable of attracting top investors.

It is widely respected as a professional outfit and has already proven itself to the market - the Reit's unit price has risen 75% since listing in Singapore in 2002. Its success is made easier by the quality of the properties it owns: five popular shopping malls with very high occupancy rates, strong and stable incomes, and rising valuations. Plaza Singapura, a seven-storey shopping mall in the premium Orchard Road shopping district, fits nicely into this portfolio.

To buy assets of this quality is still an attractive proposition, even at such tight pricing, for investors in the US and Europe, where similar assets typically pay around 5bp less. But there are few of those deals around at the moment so there's plenty of appetite.

There were few technical challenges to the deal as it was offered under a programme and the most interesting aspect of the transaction, besides the tight pricing, was the fact that HSBC arranged it. HVB established the programme last year and given the bank's prominence on Singapore mortgage-backed deals it came as a surprise to some, HVB in particular, that HSBC was mandated to arrange this latest offer.

With no innovation on the structuring side and strong appetite in the market it is a no-brainer to say that HSBC did not make a fortune in fees, having undercut HVB to get on the transaction. But that is an ominous sign for other ABS bankers in the region - a clear demonstration that HSBC is going to continue to be extremely aggressive in its bid to win market share. It already claims to have a second Singapore deal, the subject of much interest in the market, and is slowly growing its team under Sarwar Ahmad.

The notes have a maturity date of August 2009 and are rated Aaa by Moody's, which estimated a loan-to-value at 38.5% of the stabilized value and a stressed debt service coverage ratio of 2.34 times in its pre-sales report. HSBC is providing a cross-currency swap to switch the funds into Singapore dollars for the acquisition of Plaza Singapura, which has an estimated value of S$710 million.