Credit Crisis Brings Securitisation Rush

Credit crisis brings securitisation rush

BLOOMBERG
For Bank International Indonesia, borrowing US$100 million may hinge on people flexing their credit cards in Jakarta and Bali.

In an equation being played out across Asia, the Indonesian bank - one of the country's largest private lenders - hopes to sell securities backed by credit cards or other payments it expects to receive in the future.

For some Asian companies, securitisation might be one of the few ways left to raise money.

Chase Manhattan Corp and other international banks are already owed $80 billion by companies in Indonesia alone, and few are looking to lend more in Asia as much of the region slogs through a recession.

"Companies don't go bankrupt because they owe too much money," Daiwa Securities America structured finance head Arthur Jonokuchi said.

"They go bankrupt because they can't get new money."

Getting new money is what Bank International hopes securitisation will do.

A bank or company securitising sells debt by promising to use future payments; on credit cards, home loans, leases - just about anything that generates regular cash - to pay off the loan.

Bankers often can structure the transaction so the securities are safe enough to earn AAA ratings.

Granted, bankers have been talking for years about the potential for these asset-backed securities in Asia.

The market - as big as $75 billion during the next three years, bankers say - is dwarfed by the US, where such transactions raised $178 billion last year alone.

Securitisations, however, are not always a safe certainty in Asia at present.

Standard & Poor's yesterday cut the rating on $100 million of lease-backed notes sold by Indonesia's Ongko International Finance to D because the firm defaulted on interest payments.

Still, for companies hammered by tumbling financial markets, securitisation is one of the few avenues left for new cash.

Many cannot sell ordinary debt or equity.

Moody's Investors Service expects Asian companies to raise more than $25 billion this year through securitisation, which increased 94 per cent in the first quarter to $5.4 billion.

In part, asset-backed sales are rising because many international fund managers are not allowed to buy debt sold by companies and countries in Asia when these are rated below investment grade.

Indonesia, for example, now carries the lowest credit rating of any nation rated by both Moody's and S&P.

In part, securitisation is the art of dressing low grade assets with a veneer of those that are higher rated. The resulting package can be bought even by those investors who are barred from buying so-called junk bonds.

"Just because a country's rating is below investment grade doesn't mean that an investment grade security can't be created," HSBC Securities asset-backed finance head Bruce Rigione said.

Bank Internasional sold $140 million of securities last year backed by credit-card receivables.

Because the receivables were cleared in the US by Visa International and Mastercard International, they were rated BBB plus, higher than Indonesia's credit rating at the time.

Now, Indonesian companies are contending with more than a recession. They are dealing with political changes too.

Bank International senior vice-president Manuel Sia visited Hong Kong this month to meet bankers and potential investors. At that very moment, looting and arson attacks erupted in Jakarta as Indonesians took to the capital's streets and demanded then-president Suharto resign.

For international investors already burnt by Asia's financial woes, the social and political unrest may be just one more reason to steer clear of Indonesia.

"I'm competing with CNN and the BBC," Mr Sia said.