Securitization shines

Raj Shourie, Deutsche Bank''s Asian head of securitization discusses the growth of the region''s ABS market.

There is a lot of optimism among ABS bankers that 2005 will prove to be the best year for Asian ABS, are you as optimistic?

Shourie: I certainly feel very optimistic about the market this year and looking ahead into next year. There's been a quite a lot of R&D put into new countries, and we're beginning to see some of that work pay off. I think Korea will continue to be a strong market, and when conditions are favorable, it has the capacity to generate deals very easily. Everything is in place for a sustainable market there.

Outside of Korea, I'm also optimistic. Taiwan continues to be a good market - we are seeing some CDO potential coming out of that market. We may see some cross border consumer finance transactions and I think you'll also see the monoline wrappers entering the market in Taiwan.

The real estate market in Singapore will continue be a driver of transactions. However, there are a finite number of securitisable properties in Singapore, so the number of real estate transactions from that market will eventually shrink. This is something to keep an eye on. That said, I expect emerging countries like Thailand to pick up some of the drop-off in activity.

I also see potential from infrastructure financing with more governments utilising securitisation - this could turn out to be a big sector, which could eventually help to drive volume. I see this in places like Korea, Hong Hong, and maybe even Singapore.

Securitisation for these issuers will be an ideal tool.

Finally, the surface has barely been scratched in terms of issuance from the banking and insurance sector in Asia. I would envisage more issuance from this sector as the onset of Basel 2 starts to make further inroads and Asian financial institutions seek to utilise assets and capital more efficiently.

You mention Thailand, how do you view the opportunities for ABS success in South East Asia?

Malaysia should have one of its best years - we can see a pretty strong pipeline there. We are beginning to see some movement in Thailand. I think people were surprised at how fast the market turned there. Not so long ago we were only seeing small domestic deals happen. I think sentiment is beginning to change and larger deals are possible. If the economics are right we may see a cross-border transaction come out of Thailand. I also think Indonesia will eventually come on stream.

Since the emergence of Asian ABS over the past few years, in your eyes, what have been the most significant developments in the market?

The most significant development has been the awareness of the product by Asian corporates, financial institutions and governmental agencies. When assessing their financing needs, these entities are now thinking of securitisation as part of their overall funding armory.

So you no longer need to explain what securitisation is - that level of knowledge and sophistication is now there.

Another important development is that you are seeing more countries thinking of implementing legislation and putting infrastructure in place to help build a sustainable ABS market. In tandem with that, ratings agencies are putting resources on the ground in more jurisdictions, which supports growth and the understanding of these markets.

Another thing to bear in mind is that you have seen spreads for ABS paper come substantially in. From an issuer's standpoint, they are able to get deals done now at, or inside, unsecured levels.

What is driving demand for money this year?

I don't think there is anything particularly new driving it. I just think issuers are seeing securitisation as a tried and tested route to raise finance. All this is good news for a developing market.

Are spreads for Asian paper capable of maintaining their current levels?

I think the answer is that spreads are capable of being maintained, but the question is will they? I think my view is that we've probably seen the tighter end of where things are. And now with what's happening in the US, we're seeing reactions in all markets, including the asset-backed markets.

So there is potential for a slight widening out, and we have already seen that in respect of the deals that came out earlier this year.

How important is the European market for Asian ABS?

It is fair to say there has been an increasingly strong European bid for assets coming out of Asia. This has been driven by increased allocation of money to this area, and new ABS investors (and conduits) setting up shop, which has resulted in a scarcity of supply of credit paper to the European investor base. This meant that large recognisable deals coming out of Korea got a better bid in Europe than from the US where investors have a much bigger investor pool from which to purchase assets. Increased European demand for Asian assets has been happening despite increased supply in the Euro securitisation market, which has grown in volume terms from an estimated Eu210 billion in 2003 to Eu250 billion in 2004.

Because of the relative scarcity of paper in Europe, would it be fair to say that the European investor looks at Asian paper as a means to diversifying their portfolio on a geographic basis rather than an overall asset one?

There are large asset backed investors who have allocated substantial funds for Asian paper.

But on the whole if they wish to buy into Asian asset backed paper they have had a fairly limited supply to choose from in terms of foreign currency denominated deals; primarily out of Korea and now more recently from Singapore. Clearly, the demand is there but, thus far, the deal flow has been relatively light.

What should not be forgotten is that it has taken five years of deals from Korea to have created this investor hungry environment for Korean deals. The same environment does not yet exist for deals coming from other countries, although Singapore appears to be well on its way with the CMBS deals.

I think deals that are priced in Euro are well sought after and will continue to be, but because they're in Euro, you are effectively taking yourself away from the American investor base.

How has being a European Bank with a strong Asian base been a benefit?

Deutsche Bank has strong European roots, but we're very much recognised as a global organisation. For example, we will look to take a client to where ever the best execution can be achieved; whether it is on-shore or it is offshore - in Euros or in dollars. Deutsche Bank is capable of doing that. That is what I see as our true benefit. We have a very significant Asian platform but as a global group we have that capability to execute where markets dictate.