Asset-backed securities sales to recover: Fitch

The nation's sales of asset-backed securities will recover this year, after a decline last year, as companies sell bonds backed by homes and office buildings to meet demand for higher-yielding assets, Fitch Ratings said.

Insurance companies and banks may arrange more sales of debt backed by real-estate assets, freeing up funds for investment, said Tino Jang (張庭榕), a director of Fitch's structured finance group in Taipei. Issuance of asset-backed securities this year will probably at least match last year's NT$41.1 billion (US$1.2 billion) in sales, Jang said.

"Taiwan's securitization market this year should slightly outgrow last year's as quite a few local companies have inquired with us about their issuing plans," Jang said in a March 27 interview. Companies "can realize capital gains and with this money they can invest in other properties."

Asset-backed securities may attract investors looking for higher yields than they can get on government debt.

The nation's 10-year bonds are the second-lowest yielding in the Asia-Pacific region after Japan.

Issuance of asset-backed securities fell 29 percent last year as rising defaults on credit-card payments made the assets less attractive to repackage into bonds, Fitch data showed.

Securitized products that will be popular this year include those backed by trade receivables, auto loans and equipment leases, as well as REITs, Jang said.

Cathay Financial Holding Co (國泰金控), the nation's biggest financial services company by assets, plans to sell close to NT$4 billion of REITs in the second quarter and to issue other asset-backed securities this year, Cathay Financial executive vice president Lee Chang-ken (李長庚) said on Feb. 27.

Sales of credit-card backed debt fell last year as the nation recovered from a crisis that started in the fourth quarter of 2005 when consumers failed to pay bills on cards aggressively marketed to them by banks.

The demand for higher-yielding assets will allow more than NT$110 billion of collateralized debt obligations (CDOs) to be sold this year, said Jackie Lee (李世傑), a Taipei-based associate director at Fitch. Sales fell 13 percent last year to NT$109.7 billion, he said.

CDOs are created by pooling bonds, loans or credit-default swaps and using their income to pay coupons to investors. CDOs are divided into different portions of varying risk, which can offer higher returns than the debt they are based on or equivalently rated bonds.

The nation opened its markets to securitized products in June 2002 with the Financial Asset Securitization Law (金融資產證券化法), which allowed the repackaging of assets such as residential mortgages, car loans and credit-card receivables.