Non-Japan Asia Structured Finance 2007 Outlook Stable; Singapore RMBS, Korea ABS Lead Issuance
Fitch Ratings (December 12, 2006)
Fitch Ratings-Hong Kong/Singapore-12 December 2006: Fitch Ratings said in an outlook report published today that non-Japan Asia structured finance issuance will continue to be driven by the real estate sector in Singapore as well as refinancing activities by Korean consumer finance and credit card issuers. The agency added that having suffered from credit deterioration in the consumer sector in 2006, Taiwan should re-emerge as the third most active country with more issuance across the asset-backed securities ("ABS"), commercial mortgage backed securities ("CMBS") and residential mortgage backed securities ("RMBS") sectors in 2007.
In the report, the agency elaborates that Singapore's property assets continued to show strong performance in 2006 supported by rising property prices and rental rates, as well as sound economic fundamentals. CMBS has been the major asset class for Singapore during the past several years, with most of the CMBS deals issued at 'AAA' and expected to have a stable outlook in 2007.
Meanwhile, South Korean asset performance should remain steady as well despite North Korean security concerns. Korean government measures to rehabilitate delinquent obligors in the consumer finance sector and curb property speculation have helped to stabilise ABS and RMBS asset performance in 2006 and into 2007.
Taiwan's consumer finance sector should see a comeback after suffering from credit deterioration during 2006 that caused higher delinquencies in consumer loan and credit card ABS transactions. Several transactions were restructured with higher credit enhancement. Slower consumer asset origination and tighter government policy with banks' underwriting policies will help to stabilise consumer asset performance in 2007. Corporate and property assets should remain stable. Political uncertainty will continue but is not expected to have any major impact on asset performance, which should stay stable or improve.
Taiwan's structured credit market should continue to be dominated by locally originated collateralized debt obligations ("CDO") issuance with more asset backed commercial paper ("ABCP") coming to market more regularly than term notes. Collateralised loan obligations ("CLOs") backed by domestic balance sheet corporate loans and with liabilities issued either by way of term notes or ABCP are expected to be active issuers in 2007. In addition, CDO issuance driven by structured bonds that include US dollar assets such as RMBS, CDOs or principal protected notes or even principal only securities are likely to continue issuance next year.
Elsewhere in Asian structured credit markets, Singapore-based CDO asset managers are expected to continue to be active issuers in 2007. Fitch expects more balance sheet CLO issuance from regional Asian banks seeking to transfer part of their corporate credit risk in response to Basel II, with the trend of a greater percentage of the initial portfolio consisting of collateral from Asia Pacific likely to continue.
Fitch's '2007 Global Structured Finance Outlook' includes a review of 2006 and asset performance and rating volatility forecasts for the global ABS, CMBS, RMBS and CDO sectors in 2007. The report also evaluates the impact of broader macroeconomic trends on the global structured finance markets and gives an overview of asset performance and credit migration trends over the past year. The report is available at www.fitchratings.com. For a more detailed analysis of the Asia Pacific CDO market, please refer to the 2007 Global CDO & Credit Derivatives Outlook which will be published shortly.
Contacts: Stan Ho, Hong Kong, Tel: +852 2263 9668; Rachel Hardee, Hong Kong, Tel: +852 2263 9918; Christopher Thorpe, London, +44 20 7862 4121
Media Relations: Ching-Yuen Lock, Singapore, Tel: +65 6238 7301; Sylvia McKaige, Singapore, Tel: +65 6336 0095.
Eldon House, 2 Eldon Street, London, EC2M 7UA