Sunway strengthens foundations with novel ABS

Malaysian property developer uses securitization to further restructuring.

Sunway is once again turning to securitization to help it restructure. The Malaysian real estate developer has set up an innovative M$245 million ($64 million) property-backed structure to dispose of its non-core property assets.

The notes will be offered to investors in four rated tranches, with an unrated subordinated tranche issued to the originators. The M$55 million triple-A notes feature a coupon of 4.75%, the M$24 million AA2 notes pay 5.5%, the M$24 million A2 notes 7%, the M$5.5 million A3 notes 7.5% and the M$136.6 million unrated notes pay 12%.

Sunway first issued asset-backed securities in 2002 through a M$450 million commercial mortgage-backed deal arranged by Deutsche Bank - Malaysia's first property securitization. The developer has teamed up with Deutsche again for its second deal, which is another ground-breaking transaction.

The interest and principal on the notes will be repaid from a combination of property sales - shopping malls, offices, vacant units and so on - and rental income from both existing properties and projects due for completion during the life of the bonds. The structure is not unheard of in Europe, but has not been used before in Asia, which led Malaysia's Securities Commission to adopt a cautious approach in approving the deal.

After years of hard work the company's restructuring programme is starting to pay dividends. The company's sound management and sensible strategy are producing profits once again and the overall financial health of the company is being reflected in the performance of its share price, which has bounced back strongly from a five-year low of RM0.245 in March 2003. Today it is trading up at RM1.78.

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