HypoVereinsbank prices MRTC securitization

The next week and a half will determine investors'' true appetite for securitizations from the Philippines.

HypoVereinsbank has set the pricing for the securitization of equity rental payments received by the Mass Rail Transit Corp. (MRTC) for the construction of a 16.8-kilometer railway that runs over the EDSA highway in Metro Manila.

The transaction is the first cross border asset backed securitization to be to be launched out of the Philippines since 1997, when JPMorgan arranged a $75 million air ticket receivables deal for Philippine Airlines.

On the face of it, the transaction is an ideal introduction to investors unfamiliar with, or perhaps even unsure of, asset-backed securitization. The underlying receivables û equity rental payments û are secure under a 25-year build-lease-transfer agreement signed in 1999 between both parties.

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

However, both bank and issuer will not be able to fully gauge the investor response to the $170 million offering until the primary settlement date on March 7. Given the rarity of the transaction, it was decided to give investors û domestic and foreign û as much time as possible to study the underlying structure of the deal.

"Given that it is effectively a first-time deal, I think both parties wanted to allow investors, particularly those in the Philippines, time to get comfortable with the deal and to get the necessary credit approval," comments one observer. "The settlement date may be too soon for some of those, but I would guess that foreign investors will be able to make their decisions a lot sooner.

"As I understand it, the initial response has been good although at this stage it's premature to say how the positive level of interest will translate into firm orders," the source adds. "I think the foreign interest will mainly come from asset managers because banks may not have credit lines long enough for the Philippines."

FinanceAsia understands that HypoVereinsbank has done a lot of work in trying to attract insurance companies to the transaction. In the Philippines, insurance companies are not allowed to buy deals that do not have 'admitted status' with the Philippine Insurance Commission. The Commission granted that status to the MRTC deal a few weeks ago.

The deal's structure is predominantly geared to meet the needs of long-term investors, although bank investors are likely to be attracted by a five-year fixed rate tranche.

The five-year piece, rated at the sovereign level of BB+/Ba1 by Fitch and Moody's, carries a nominal coupon of 9.50%, with pricing at 99.922%, to yield of 9.52%.

The second tranche features seven pieces with maturities ranging from six years to 12 years, 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 12 year bonds.

In addition, the transaction also features a third zero-coupon tranche. Although the bonds will reach legal maturity of 2025, they will start amortizing in 2015. As with the second tranche, the bonds were priced at a discount, and offer a yield of 13.17%.

All three tranches priced at a premium of around 150 over government bonds, which the source felt was fair. "If you look at other first-time deals from Asian markets, this has basically been priced at around the same level," the source says. "I would guess it was also determined by what the issuer was willing to pay and what the response was during the pre-marketing phase. In any case, the important thing with this deal was to get investors comfortable with the structure."

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