IFR Asia - 24.08.2019

RMBS buyers stay cautious

„ Structured Finance Aussie senior note sees no price traction in BOQ A$1bn REDS sale

BY JOHN WEAVERS

BANK OF QUEENSLAND returned to

the RMBS market last Thursday

with an enlarged A$1bn

(US$680m) securitisation that

struggled to gain price traction

for the senior note, despite the

scarcity value as just the fourth

sale from a regional or mutual

bank this year.

BOQ’s SERIES 2019-1 REDS TRUST

followed Members Equity

Bank’s A$1.75bn SMHL trade

on May 30 and the A$1bn

AMP Bank Progress and

A$1bn Bendigo and Adelaide

Bank Torrens mortgage

securitisations, both on June 7,

in a 2019 RMBS field dominated

by non-bank issuers.

The REDS A$920m Class

A with a 2.9-year weighted

average life was not able to

move beyond initial one-month

BBSW plus 95bp–98bp guidance

before pricing at the wide end

of the range, just 5bp and 7bp

below the 103bp Torrens and

105bp Progress RMBS senior

note spreads two-and-a-half

months earlier.

This narrowing is noticeably

less than the contraction in

senior unsecured major bank

margins over the same period.

On June 12 National Australia

Bank priced a A$2.25bn five-

year floating-rate note at

three-month BBSW plus 92bp

whereas ANZ issued a A$1.8bn

five-year trade last Thursday at

77bp over.

Such sticky pricing suggests

some lingering caution among

Triple A investors about the

Australian housing market,

though Lionel Koe, director for

securitisation origination at

NAB, said in certain investor

segments order sizes have

picked up in recent months to

reflect a steadier backdrop.

“Some investors have noted

an improvement in the housing

market, especially in previously

weakened Sydney and

Melbourne where green shoots

have appeared and house prices

have stabilised,” he said.

Koe also noted that RMBS

margins, whilst correlated

to the more liquid senior

unsecured market, tend to be

less volatile and less susceptible

to both spread widening or

tightening.

“There is a correlation

between the markets, but it is

not one-to-one,” he said.

Mortgage arrears have

certainly ratcheted higher over

the last two to three years as

the Australian housing market,

after many years of strong

growth, turned negative.

RISING ARREARS

The S&P Performance Index

(SPIN), which measures the

weighted average of arrears

beyond 30 days on prime

residential mortgage loans, was

1.51% in June, up 13bp from

a year earlier and 26bp above

the five-year average of 1.25%.

It has climbed from 1.15% in

December 2016.

Even so Australia’s 1.51%

reading is well below the 1.80%,

2.60% and 5.50% 30-days-plus

arrears in the UK, Italy and

Spain in March 2019, according

to S&P, though above the 0.61%

and 0.63% rates in Japan and

the Netherlands.

The SPIN reading for

Australian regional banks was

2.54% in June, above the 1.89%

for major banks and 0.67% for

non-bank originators, while

Indian IPO duo spooks investors

„ Equities Domestic equity capital markets seen closed until October

BY S ANURADHA

The weak post-IPO

performance of STERLING AND

WILSON SOLAR and SPANDANA

SPHOORTHY FINANCIAL is likely

to keep India’s equity capital

markets closed in the short

term.

Sterling and Wilson debuted

10% below its IPO price of

Rs780 last Tuesday and ended

the day 6.8% lower, a day after

Spandana fell as much as 19%

from the IPO price of Rs

before clawing back to Rs855.

By Friday afternoon, Sterling

and Wilson had slumped

further to Rs625 and Spandana

was at Rs823, down 19.9%

and 3.9% from the offer price,

respectively.

Follow-on offerings have not

fared any better. YES BANK which

sold a Rs19bn (US$264m)

qualified institutional

placement on August 8 at

Rs83.55 has seen its share price

crash to Rs57.45.

“We are dreading launches.

Investors need to make decent

money on deals for us to go

back to them,” said an ECM

banker away from the deals,

blaming the issue managers

for launching the IPOs too

close to each other.

“One bad listing after the

other has a domino effect.”

Bankers said new listings

are unlikely until at least early

October, if there are signs of

an economic recovery after the

start of the festival season in

September.

State-owned companies

are still looking to come

to the market as the

government wants to meet its

disinvestment target for the

financial year that ends on

March 31.

Defence contractor MAZAGON

DOCK SHIPBUILDERS is targeting

an early October launch

for a Rs5bn IPO, which was

downsized from Rs8bn–Rs9bn

after investors balked at the

proposed valuation.

The government has

increased the all-secondary

float to 28m shares for a 12.5%

stake, up from 22.4m and 10%

of the company in previous

filing. The offer price is likely

to be significantly lower than

previously expected.

INDIAN RAILWAY CATERING AND

TOURISM CORPORATION is also

on track to launch a Rs5bn–

Rs6bn IPO around the end of

September. The government

will be selling 22m shares, or

a 12.5% stake, from its 100%

holding.

BUDGET BLUES

The Indian stockmarket

has been one of the worst

performing markets in Asia,

weighed down by local and

global economic slowdowns

and July’s federal budget.

Foreign portfolio investors

have become net sellers

of Indian shares since the

budget introduced higher tax

surcharges on the super-rich.

FPIs registered as trusts in India

are taxed at individual tax rates.

The benchmark S&P BSE

Sensex index is down 5.9%

since the end of June.

Although regulators have

stepped in with damage

control measures, investors

are not comforted. The

Reserve Bank of India cut

interest rates by 35bp at

its latest monetary policy

meeting, and the Securities

and Exchange Board of India

eased the regulatory and

compliance framework for

FPIs by broadening their

classification and simplifying

registration, entry and know-

your-customer rules in a bid to

boost investment.

“The damage has been done

at the highest level of the

government and the fix has to

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