Thumbs down
for Kiwi RMBS
proposal
The Australian Securitisation Forum has
given a resounding thumbs down to the
Reserve Bank of New Zealand’s proposed
new format for mortgage bonds, intended
to revive the country’s moribund RMBS
market.
The ASF, the trade body of the
Australian and New Zealand securitisation
markets, argues that Residential Mortgage
Obligations, as the new format is called,
CANNOTûBEûTAILOREDûTOûMEETûSPECIlCûINVESTORû
requirements and will suffer from investors’
lack of familiarity with the new type of
security.
The RBNZ is looking to replace self-
securitised RMBS, called Internal-RMBS,
which represent the largest source of
available collateral for banks when
transacting with the central bank.
I-RMBS are not tradable, which would be aSIGNIlCANTûPROBLEMûINûTHEûEVENTûOFûAûFUTUREû
lNANCIALûCRISISûANDûMAKEûBANKSûHEAVILYû
dependent on liquidity from the RBNZ.
The country’s four dominant banks have
completely abandoned the public RMBS
market, which has only seen four, non-
MAJORûBANK ûTRADESûSINCEûTHEûGLOBALûlNANCIALû
crisis.
The Big Four have been allowed to issue
mortgage-backed covered bonds since 2010,
but they only access offshore jurisdictions
with ASB, Westpac New Zealand and Bank
of New Zealand raising a combined €2.25bn
in the covered Eurobond market last year
alone.
RMOs are an effort to combine the
strength of covered bonds and RMBS,
while avoiding their weaknesses, with
a standardised instrument that offers
consistent loan portfolio quality, combined
with high loss resilience. This would allow
for economies of scale and help to reduce
liquidity premiums, the RBNZ said last
November in its consultation paper.
The RBNZ believes the RMO standard will
improve the risk position of the central bank
by promoting the use of higher quality,comparable, transparent and potentially
more liquid, mortgage bonds as collateral in
policy bank’s lending operations.
The ASF argues in response that the
2-/ûSTRUCTUREûISûNOTûSUFlCIENTLYûmEXIBLEûTOû
encourage investors seeking high-quality
securities and the opportunity for a high
yield.
The key to creating an active
securitisation market, according to the
ASF, is to attract new domestic investors,
notably Kiwisaver, New Zealand’s voluntary
long-term savings scheme, mainly used
for retirement and house deposits, and
superannuation funds, and offshore
investors already active in the Australian,
US, European and even Asian RMBS
markets.
The problem with the latter is they are
more likely to participate in a security
they are familiar with rather than a new
instrument like RMOs, which has no track
record.
!NOTHERûPROBLEMûTHEû!3&ûHASûIDENTIlEDû
is the requirement to cherry pick high-
quality assets in RMO pools. This will cause
high-risk loans to remain on the balancePeople
&Markets
Japanese
insurers snap up
project debt
Japan’s top insurers are targeting the
higher yields on offer in the global project-
lNANCINGûMARKET ûWITHûINVESTMENTSûSURGINGû
NEARLYûlVE
FOLDûINûTHEûPASTûYEAR
The foray into the US$230bn global
loan market for infrastructure and energy
projects underscores the challenges
Japanese insurers face at home, where
persistently low interest rates have
driven down yields on their staple diet of
government bonds.
Investments in overseas PF from
Japan’s top four life insurers, Dai-ichi
Life Insurance, Nippon Life Insurance,
Sumitomo Life Insurance and Meiji Yasuda
Life Insurance, jumped to about ¥160bn
53BN ûINûTHEûCURRENTûlNANCIALûYEARûTOû
March 31 from ¥35bn in the same period in
2017, according to Reuters calculations.
The sharp increase in PF comes at the
expense of their exposure to JGBs and other
domestic bonds, which generate ultra-low
yields.
Richer returns on offshore PF deals,
which pay interest margins of 150bp–200bp
on average, far greater than single-digityields on domestic corporate bonds, hold
an obvious appeal for insurers prepared to
study the credits.
“PF does take time and effort, but returns
in proportion to risks taken are good,”
said Shinji Kuge, general manager of the
STRUCTUREDûlNANCEûDEPARTMENTûATû.IPPONû
Life Insurance.
Nippon Life, Japan’s largest private-sector
life insurer with US$700bn in assets, saidit had already committed over ¥120bn to
about 10 overseas PF deals since setting up
AûDEDICATEDûSTRUCTUREDûlNANCEûDEPARTMENTû
in April 2017.FOREIGN AFFAIRS
Last July, Nippon Life and Dai-ichi
Life committed ¥17.5bn and ¥10bn,
RESPECTIVELY ûTOûAûcBNûlNANCINGûFORûTHEû
Ikitelli hospital public-private partnershipPROJECTûINû4URKEYû4HATûWASûTHEûlRSTûTIMEû
both insurers participated in an offshore PF
in the primary market.
“Given the tight credit spreads, we are
LOOKINGûFORûlELDSûWHEREûNOTûMANYûINVESTORSû
have entered yet,” said Akinao Nishio,
GENERALûMANAGERûOFûSTRUCTUREDûlNANCEû
group at Dai-ichi Life, Japan’s second-largest
private-sector insurer.
The pricing on the ¥200bn Ikitelli PPP
loan is not known, but the two insurers
participated in another borrowing in
Australia, providing indications of the risk
and returns they are chasing.
In October, Australian desalination
company Aquasure closed a A$766m
53MûTHEN û
YEARûRElNANCINGûWHEREû
Nippon Life and Dai-ichi Life took A$176m
and A$50m, respectively.
The loan has a large Australian dollar
tranche, paying an interest margin of
160bp over BBSY and a small one in US
dollars at 120bp–130bp over Libor.
Nippon Life’s commitment was the
second-largest of any participating lender
ANDûITSûlRSTû0&ûINû!USTRALIA
Meanwhile, Dai-ichi Life has been a
pioneer among peers, investing in overseas
PF since 2014. Those investments were
always through the secondary market until
the Ikitelli project.
)NûTHEûCURRENTûlNANCIALûYEAR û$AI
ICHIûHASû
already committed about ¥25bn combined“PF does take time and effort,
but returns in proportion to risks
taken are good,” said Shinji
Kuge, general manager of the
structured finance department
at Nippon Life Insurance.