International MBS Cooks up
September 13, 1999
India's securitization market is set to see two major transactions before the end of its fiscal year on March 31, 2000, with the country's Housing and Urban Development Corp. (Hudco) hoping to launch a deal backed by infrastructure loans, and the National Housing Bank (NHB) inching closer toward launching India's first mortgage-backed securities transaction.
Despite reports in the business press suggesting that Hudco's deal would be structured as a Eurobond, both transactions will be denominated in rupees and aimed at local investors.
"It would be impossible to do an international deal backed by local currency flows as the rupee is not a fully convertible currency and you can't get swaps for longer than six-months," said a securitization pro in New Delhi.
According to Hudco Chairman V. Suresh, the state-owned development bank is currently holding a beauty parade to decide on arrangers for a deal worth 10 billion rupees ($237 million).
It will be backed by receivables from developments including a road bridge in the state of Maharastra, two airport projects in Kerela and loans to water and road projects in Karnataka and Gujurat. The transaction is likely to have a maturity of between seven and 10 years.
According to securitization experts, the easiest way to launch a deal in India is to identify several large investors and structure a transaction using pass-through certificates or debentures, via a company or trust special purpose vehicle, rather than a true bond structure. It is thought likely that Hudco's deal will follow the SPV route.
If the deal is successful, Hudco will then turn to its extensive mortgage portfolio (worth $5.5 billion at the end of March 1999) for further deals, Suresh added.
Before then, however, the NHB is likely to have launched India's first MBS, which it has been working on since last summer, according to sources in India. The transaction, worth up to $23 million and with a maturity of around seven years, is expected to achieve an triple-A local currency rating. The deal is being arranged by SBI Capital Markets, an Indian firm.
Pricing has yet to be decided, but sources in India expect a coupon of between 8% and 9%.
The deal packages loans acquired by the NHB from local state-level lenders, known as housing finance companies (HFCs), in states that have dropped stamp duty to 0.1% (from up to 8%) to enable securitization. Those states include Gujurat, Tamil Nadu, Karnataka and Maharastra, meaning that the HFCs that will participate will include HDFC, LIC Housing Finance, Canfin and Dewan Housing, respectively.
Korea Readies Mortgage Corp.
Meanwhile, in the first step toward achieving its goal of creating a liquid secondary mortgage market, South Korea is set to launch a quasi-governmental mortgage corporation that will likely be the country's first issuer of mortgage-backed securities.
The Korea Mortgage Corp.'s (KMC) first target will be to securitize assets of the National Housing Fund, the country's biggest provider of mortgages, said Kwon Kyung Won, head of the KMC's business planning team in Seoul.
"The government wants to securitize its portfolio through the KMC, which is why it is being set up at this time," he said. Ultimately, the KMC's goal is to increase affordability of home mortgages for low to middle-income citizens, he added.
Ownership of the KMC will be split between the government and the private sector. Korea Exchange Bank, Kookmin Bank, Housing and Commercial Bank, and Hyundai Investment Trust Management Trust will each take a 15% percent stake in the new venture, while Samsung Life Insurance will have a 5% stake. The largest share will be taken by the Korean government's Ministry of Construction and Transportation, which will own 35%. Initial capital is set for 100 billion won ($84.5 million).
In addition, the International Finance Corp., the private lending arm of the World Bank, has also expressed interest in buying up to 10% of the KMC, said Kwon. The IFC is now providing technical advice to the KMC and will recommend outside advisers to help structure an MBS issue, he said, but no decision has been made yet.
Since the KMC is still waiting to obtain a license from the Financial Supervisory Service, Korea's financial regulator, it is still too early to talk about the size and launch date for the first MBS. That approval is expected sometime in September, Kwon said.
Creation of the KMC follows the passage of a law in April allowing private entities to set up corporations backed by the government for the purchase and securitization of mortgages. The government hopes that such corporations will play a role similar to that of Fannie Mae in the U.S. by creating a deeper and more liquid housing market.