Securitisation still out of favour

With corporate supply limited, Asian fund managers might consider looking at a rare growth area for Australian-origin debt issuance: nonbank financial institutions. But these names fund in asset-backed format, and the Asian buy side is still struggling with negative perceptions of the asset class.

DAVISON Arguably the biggest growth area in corporate Australia – certainly when it comes to call on debt capital markets – is the nonbank lender sector. These issuers all fund predominantly via securitisation, though. Is there any interest in this asset class?

FUND MANAGER 1 We are not sufficiently short of supply to open that door – yet.

FUND MANAGER 3 Our Asian book doesn’t buy securitisation, either. We are quite traditional, long-only real money, though. This means we have to price in liquidity expectations for anything we buy. The bottom line is that when we look at securitised products, for the price to be worth it to us probably means it’s not going to be worth it for the issuer.

BANK INVESTOR We are also not in the securitisation market and actually I think it’s going to take a little while before we venture back. As a bank, it’s an asset class that should theoretically make sense for our balance sheet to hold. But banks in the region got burned pretty badly by securitisation during and after the financial crisis. Senior management is usually older guys and the reality is that in most cases they tend to be very, very against this sort of product.

There is some sign of change, though – and it’s coming from China. The asset-backed securities (ABS) market there is developing quite rapidly, to the extent that it is actually reversing the normal flow of market evolution.

Traditionally, Hong Kong has been more advanced in financial-market development, but in this case it’s the onshore branches driving the conversation around desire to start participating in ABS.
Our response tends to be that if these onshore guys can persuade senior management we are happy to go with the decision. Actually I hope they will approve it, because this market is now so significant in China – it’s a standard asset class.

"As a bank, securitisation is an asset class that theoretically makes sense for our balance sheet to hold. But banks in the region got burned pretty badly by securitisation during and after the financial crisis."

DAVISON If Asian securitisation is growing, particularly in China, does the growth of the asset class in the region make other investors more likely to participate?

FUND MANAGER 2 The number of securitisation deal launches in the past year or two has seen exponential growth. But, even so, I doubt the securitisation market will ever go back to its heyday. The biggest issue is secondary liquidity. It is something investors have an increasing need for, and you just don’t find it in the securitisation sector.