Wary of over-reliance on their deposit bases, Taiwan's banks are exploring opportunities for diversifying their funding through securitization. After a number of false starts the market is now off to a tentative start with the country's second mortgage-backed deal - a NT$4.39 billion ($131 million) offer for Taishin International Bank - closing Wednesday.
This second deal comes hot on the heels of First Commercial Bank's market-opening mortgage deal and two other commercial banks are also waiting in the wings with deals of their own. Still, these first deals are largely experimental; just a foretaste of what may be to come. "They've been fairly small deals so far," says one banker. "The banks want to do a first deal, just to try it out. Going forward I think we'll see some larger deals."
The Taishin deal is a near-clone of the first mortgage deal; in terms of deal size, asset quality, structure and pricing there is very little to differentiate the two. Three tranches of rated notes were sold to private investors through the Taishin Mortgage Loan Securitization Trust 2004-1 special purpose vehicle, with a subordinated tranche of undisclosed value retained by the originator. Citigroup acted as lead manager and underwriter while Taiwan Securities and E-Sun Securities acted as co-managers.
Like the First Commercial deal arranged by Deutsche, Taishin's offer is priced against the adjustable rate mortgage (ARM) index - the triple-A notes offer 25 basis points over ARMs, exactly where First Commercial priced. Even Citi hadn't expected to match that kind of pricing given that First Commercial, a government-owned bank, was able to leverage relationships to help the deal along. The weighted average life is 2.32 years for the senior notes and 4.98 years for the other two tranches.
According to Citi the deal was 25% over-subscribed with most of the interest coming from banks, credit unions, bills finance houses and insurance companies. That broad support helped the twA tranche price at 60bp over; 5bp tighter than First Commercial's single-A slice. The third tranche, rated twBBB by Taiwan Ratings, represents the only real structural difference. First Commercial's notes were rated triple-A, double-A and single-A, but Taishin decided to tap a slightly different investor base by offering triple-B paper at 85bp.
Going forward the market is expected to develop away from the ARMs deals that have come along so far. When Chinatrust tried to price the first mortgage deal against fixed-rate commercial paper investors weren't interested, but the Taiwanese banks will be keen to solve that problem given the number of fixed-rate mortgages on their books. Chang Hwa Commercial Bank, another Citi deal, will be the next mortgage-baked offer to come to market, some time in the summer.