Bangkok--18 Jan--Moody's Investors Service
Moody's Investors Service says that synthetic bespoke transactions dominated the Asian market in 2006, mirroring the situation prevailing in 2005. However, towards the latter part of the year the hot topic was Constant Proportion Debt Obligations (CPDOs). While these were mostly structured in Europe, Asian investors' interest in this product has led more arrangers in the region to show increased interest in structuring these types of transactions locally.
It remains to be seen whether CPDOs will dominate the synthetic market in 2007. However, a trend is developing towards more emerging market credits which has carried on from last year when for the first time Moody's rated a transaction involving a portfolio consisting entirely of Indian credits. Meanwhile more synthetic balance sheet Collateralised Loan
Obligations (CLO) deals are anticipated this year, not just from existing issuers but from a number of new issuers as well.
These and other conclusions are contained in Moody's just-released review of the collateralized debt obligation (CDO) market in Asia in 2006 and the outlook for 2007, excluding Japan and Australia. Authored by Myrna Fajardo, Vice President/Senior Credit Officer, and Elaine Ng, Assistant Vice President/Analyst, the report also says that privately placed and publicly rated single-tranche synthetic CDO transactions, primarily referencing US and European corporate entities, dominated the Asian market in 2006 as in 2005.
"In most cases, these deals, which originated out of ex-Japan Asia, were tailor-made to meet specific investor requirements," says Fajardo. "One of the trends included the move to managed transactions as opposed to purely static transactions; a situation evidenced by the emergence of newly structured deals as well as previously issued static deals
restructured to add a portfolio manager," she notes.
"In addition to arbitrage synthetic CDO transactions, synthetic balance sheet CLO transactions remained of interest to banks in the region," adds Fajardo. "For instance, Standard Chartered Bank issued two deals in 2006 with portfolios heavily concentrated in Asian credits and towards the latter part of the year, Calyon in Hong Kong followed suit with the issuance of Daphne Finance 5 plc, whose portfolio is also highly concentrated in Asian credits."
However, continued credit deterioration of some of the more prevalent names in synthetic arbitrage transactions from the auto and printing and publishing industries led to increased pressure on the rating of tranches and continued downgrades, says the report.
Elsewhere, 2006 saw several balance sheet cash CLOs issued domestically in Malaysia, while China saw its second domestic CLO issued as well as two non-performing loan securitizations transactions. According to the report, Chinese banks may look to issue more domestic CLO cash transactions this year, driven by capital relief requirements and a desire to gain technological expertise.
Moody's also expects increased cash transactions in the region with several Chinese banks looking to issue cash collateralized loan obligations (CLO) transactions denominated in local currency. Meanwhile, growing popularity for the securitization of SME loans in the region could mean more activity in this type of transaction, including from Korea, Malaysia and India.
The report is entitled '2006 Review and 2007 Outlook Asian Collateralized Debt Obligations: Synthetic Arbitrage and Balance Sheet Transactions Dominate.' It can be accessed at www.moodys.com .
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Hong Kong
Min Ye
Managing Director
Structured Finance Group
Moody's Asia Pacific Ltd.
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Hong Kong
Myrna Fajardo
VP - Senior Credit Officer
Structured Finance Group
Moody's Asia Pacific Ltd.
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