Malaysia has become the latest Asian nation to look towards securitization as a means for its corporates to raise funds, following the recent setting out of comprehensive guidelines for asset-backed securities (ABS) issuance from the Securities Commission (SC).
Although there have been limited examples of small-scale private ABS activity, nothing approaching a 'true' securitization issue has ever emerged out of Malaysia. True in this context refers to a situation where selected assets are transferred off a company's balance sheets into a bankruptcy remote special purpose vehicle (SPV).
In Malaysia, the legal and regulatory framework for securitization has previously been sketchy, to say the least, with it being unclear whether potential issuers would be subject to withholding and corporate tax when establishing the SPV.
Now that clear legislation is in place, it should pave the way for some significant and high profile issuance in the latter part of this year.
In terms of a definition of what a securitization actually is, the SC defines it as a transfer of assets or risks to a third party where the asset transfer is funded by issuing debt to investors using the cash flows of those assets. The originator is not allowed to retain any residual beneficial interest in the underlying portfolio.
At this stage, the laws stipulate that the issuers must be incorporated in Malaysia and have to be a going concern at the time the assets are transferred to the SPV. The SPV must also be established in Malaysia for tax purposes.
For any deal to take place, it must first receive the approval of the SC. That approval is dependent on providing satisfactory description of the issue, a preliminary rating report, legal proof that a true sale has been effected, as well as historical evidence on how the assets have performed.
FinanceAsia understands that a number of issuers will be looking at possible deals, although given how long it often takes to structure ABS transactions as opposed to straight bond deals, it is not likely that we will see much of a surge until the fourth quarter.
Two deals that should definitely see the light of day this year is one by the state asset management company Danaharta and another by the electronics company First Silicon.
Danaharta confirmed that it is looking at securitizing part of its non-performing loans portfolio late this year, following the lead of Korea's Kamco, although no mandate has been confirmed. Meanwhile, Nomura Securities has been working on a whole business securitization for First Silicon for over a year, with some suggestions in the market that the deal could be launched within the next two months.