Aussie mortgage market stirring after 2-year lull
Analysts expect more issues of mortgage-backed securities as market sentiment improves
(SYDNEY) Australia's commercial mortgage-backed securities market is coming back to life after a two-year lull thanks to improving investor appetite and because banks are looking to cut their exposure to property borrowers.
With A$2.4 billion (S$3 billion) of debt maturing next year, analysts expect a sprinkling of issues.
'I could see around A$2 billion,' said Chad Karpes, head of the Australian dollar bond syndicate at RBS in Sydney.
'If we start to see the market sentiment improve, as it has been, ... we could see A$2 billion-plus from a number of issuers across the commercial spectrum.'
Issuance of commercial mortgage-backed securities, or CMBS, has virtually evaporated since the market peaked in 2007 at US$230 billion globally when the US sub-prime mortgage crisis triggered billions of dollars in loan defaults worldwide.
Australia's A$6.6 billion market of outstanding CMBS was also brought to a standstill as real estate firms were forced to raise capital elsewhere or sell assets to raise funds.
In September, shopping centre owner Macquarie Countrywide Trust became the first property borrower to break the spell by selling A$265 million of notes in the first Australian issue backed by commercial mortgages since 2007.
The offer was also one of the few issues completed globally this year as more US real estate lenders fight for survival.
On Sunday, US real estate company Capmark Financial became the latest casualty and filed for bankruptcy protection.
Australia has been relatively sheltered thanks to a resilient economy and a restrained jobless rate.
Still, the commercial property industry was badly hit as asset prices tumbled and shopping mall owner Centro Properties Group became Australia's highest profile casualty.
As market sentiment improves and liquidity returns, bankers expect more borrowers to test the waters as just over A$1 billion of CMBS notes mature in the first quarter of next year.
'There is lot of refinancing coming up early next year and there is institutional interest depending on the margin and the pool quality,' said Bob Sahota, head of fixed interest at Challenger Financial Services.
Mr Sahota, who likes mortgages originated by shopping centres, favours Australian CMBS because they are simply structured - unlike those offered in the United States.
US commercial mortgage-backed securities have a much more complex structure and often more complex asset pools with multiple small loans and originators, according to Stephen Maher, head of debt markets at Macquarie Bank.
'It's very messy,' he said.
At the peak of the crisis, triple A-rated CMBS spreads reached 1,000 basis points over bank bill swap rate from around 20 bps before the meltdown.
New commercial- backed notes would now pay 300 to 350 bps, according to bankers, a level that may suit property firms, in particular those seeking funding diversification.
'Real estate firms cannot indefinitely raise equity or sell all their assets or look to bank debt alone,' said Satish Chand, securitisation director at National Australia Bank.
'They need to access diversified funds.' Mr Chand sees a pipeline of commercial mortgage-backed offers with modest issue sizes of A$250 million to A$300 million compared with up to A$1 billion before the crisis.
But not all investors are confident of a CMBS revival. John Sorrell, fund manager at Tyndall-Suncorp Investment Management, says he would consider investing in commercial mortgage-backed notes but is not certain about the appetite for the securities in Australia.
'I just think there is a range of divergent attitudes.' Mr Sorrel is watching Centro's next debt maturity and is mindful of a deterioration of the CMBS market in the United States.
'If the US gets worse, it will hardly improve sentiment in Australia.'
Martin Koh/ Sherry Tang
Martin Koh/ Sherry Tang