Asia-Pacific Structured Finance Issue: TG Master’s S$200m progress payments ABS

IFR Review of the Year 2013
3 min read

Restarting the engine

Property is one of the most important sectors for Singapore banks when it comes to lending. In a country that has seen exponential price appreciation for residential developments in the past decade, being able to finance more buildings is a key focus.

However, local banks have been reaching their limits on lending to individual developers and to the sector as a whole, especially since the local government has started moving to curb property price appreciation by forcing banks to lend less to the sector.

Amid that backdrop, securitisation sounds like the obvious solution. Yet for the past five years there has been almost nothing in the South-East Asian structured market related to property.

Singapore developer TG Master’s Orchis Capital ABS changed that. The deal updated an old idea of securitising progress payments to free up capital trapped in the project account.

That allowed banks to reduce their lending to the company as it works to finish the ongoing project, freeing up balance sheet to lend to other developments. It also helped TG Master get money upfront that would otherwise only be seen after its project is completed.

The structure is yet to be followed by others, but bankers at sole-lead DBS received lots of enquiries about it and they expect to reproduce it soon for other developers.

Investors, on their side, have also proven that they are keen on buying securitisation bonds again.

“People are finally warming up again to securitisation, and we expect the market-opening trades to have follow-on trades,” said Peeyush Pallav, vice-president, structured debt solutions at DBS Bank.

The deal saw TG Master sell S$200m (US$160m) senior secured bonds privately. The offering, denominated in Singapore dollars, is legally due in March 2018, but has an expected maturity of March 2017 and was sold to yield 2.5%.

The bonds are backed against proceeds from presales of units in Skies Miltonia Property, a high-end project being developed in Singapore’s Yishun Avenue.

“For the client, they have got access to unencumbered capital, which they would not have been able to get in any other structure, and the cost is comparable to a loan-type instrument,” said Colin Chen, head of structured solutions at DBS.

“For the banking systems it allows what is potentially a choke-point, the ability to continue lending to real estate, as Singapore has real estate limits for each bank,” he said.

Under the structure, the issuer was able to securitise future payments of buyers who have already made a downpayment and use the proceeds to start other projects, while it manages the Skies Miltonia completion.

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