Singapore/Tokyo: Sales of asset-backed securities and other structured bonds in Asia, outside Japan, rose 14% to $29.1 billion (Rs1.1 trillion) in the first half of the year, according to Moody’s Investors Service.
India, South Korea, Singapore and Malaysia led the rise in sales, from $25.5 billion in the first half of 2006, Moody’s said in a statement on Thursday. There may be deals in Hong Kong and Indonesia, according to the US-based rating company.
The figures show demand for the Asian securities was growing before global losses on notes linked to US subprime mortgages spurred investors to shun all but the safest debt and pushed up corporate borrowing costs in August. The subsequent “negative sentiment” may discourage Asian lenders from securitizing assets, Moody’s said.
“I suspect the structured product people will be back in business with Asia being prime clients,” said Tim Condon, head of research at ING Groep NV in Singapore. Structured products “offer yield in a world of low risk-free rates.”
Global sales of new collateralized debt obligations (CDOs) fell to the lowest in more than a year as investors fled securities that hold subprime mortgages, Morgan Stanley said on Tuesday.
There were $17 billion in CDO sales from 35 transactions in August—down 54% from July, according to the New York-based securities firm.
Yields on three-month US asset-backed commercial paper, a type of structured debt, rose this week to the highest in more than six years as the yield on the benchmark US 10-year note declined to the lowest since March.
The first Asian constant proportion debt obligation was created in August, according to Moody’s. The securities pay investors from the income earned by making leveraged bets on the creditworthiness of companies using credit-default swaps, contracts investors use to speculate on borrowers’ ability to repay debt.
There may be more new derivative deals in the region, including CDOs linked to prices of commodities, Moody’s said. CDOs package bonds or loans into a pool of assets and are usually split into several levels of risk according to the likelihood that the notes will suffer losses as assets in the pool default.
“Looking ahead, Asia may see some innovative derivative deals emerging in the coming months, despite some signs of uncertainty in the region’s markets,” Dominique Gribot-Carroz, a Hong Kong-based analyst at Moody’s, said.
Bank Tabungan Negara PT, an Indonesian state-owned mortgage lender, plans to raise 500 billion rupiah ($53 million) in asset-backed securities later this year—the first sale of such securities in the nation since the 1997 Asian financial crisis, according to Moody’s. Other finance companies are considering selling bonds backed by home loans and other asset-backed securities, the credit assessor said.
“With the retail lending business in India likely to grow, although possibly at a slower rate, we expect ABS issuance to increase,” Gribot-Carroz said. “Banks, especially those active in the retail finance business, are likely to face capital constraints.” Bloomberg