India leads surge in Asian structured bond sales

Sales of asset-backed securities and other structured bonds in Asia outside Japan rose 14 percent to $29.1 billion in the first half of the year, according to Moody's Investors Service.

India, South Korea, Singapore and Malaysia led the increase in sales, from $25.5 billion in the first half of 2006, Moody's said in a statement today. There may be deals in Hong Kong and Indonesia, according to the 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 securitising 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 CDOs fell to the lowest in more than a year as investors fled securities that hold subprime mortgages, Morgan Stanley said yesterday. There were $17 billion in CDO sales from 35 transactions in August, down 54 percent from July, according to the New York-based securities firm.

Yields on three-month U.S. 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 U.S. 10-year note declined to the lowest since March.

New Derivative Deals
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 that investors use to speculate on borrowers' ability to repay debt.

There may be more new derivative deals in the region, including collateralized debt obligations 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.

Bank Tabungan Negara
PT Bank Tabungan Negara, 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.

Sales of notes backed by real-estate more than doubled in Singapore to almost $1.2 billion, Moody's said. In India, structured bond sales almost doubled to $5.5 billion and issuance of asset-backed securities will probably rise in the second half of the year, the rating company said.

Standard Chartered
Banks raise money by selling bonds backed by credit-card receivables or mortgage payments. Standard Chartered Plc in June created its fourth synthetic collateralized loan obligation to reduce risk from its corporate loans, Moody's said.

The London- based bank, which earns most of its profit in Asia, last year used a similar structure to buy default protection on about $1.5 billion in Asian and Middle-East loans.

Sales of structured bonds in South Korea, which accounted for almost 65 percent of the region's issuance, rose to almost $19 billion in the first half of this year, from about $17 billion in the same period in 2006, Moody's said.

In the US, asset-backed debt fell 3.4 percent in August after a 1.2 percent drop in July, showing the two largest declines in at least 13 years, according to Merrill Lynch & Co.'s broadest index.

Increasing delinquencies on subprime mortgages, loans to home buyers with poor credit histories or high debt, led to credit ratings cuts on 316 CDO bonds in August compared with 54 upgrades, Morgan Stanley said.

Potential losses on the mortgages and the downgrades have caused investors to avoid buying the bonds.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.

FORWARD RUN

Sales of asset-backed securities and other structured bonds in Asia outside Japan rose 14 per cent to $29.1 billion

India, South Korea, Singapore and Malaysia led the increase in sales, from $25.5 billion in the first half of 2006

In India, structured bond sales almost doubled to $5.5 billion and issuance of asset-backed securities will probably rise in the second half of the year

Sales of structured bonds in South Korea, which accounted for almost 65 percent of the region's issuance, rose to almost $19 billion in the first half of this year