Dah Sing Bank will soon launch its long-awaited mortgage securitisation deal, containing a number of features designed to attract a wider spectrum of investors. Sources say the bank has mandated HSBC Markets to help arrange a US$250 million issue of mortgage-backed securities (MBS) which pay a coupon of about 40-60 basis points over the London interbank offered rate (Libor). Observers suggested this rate might appear unattractive and could allow Dah Sing to pocket a huge margin by originating loans with a prime-based rate and then selling them at an interbank-plus rate. Banking sources said given the complexity of the deal, Dah Sing needs to pay an arranging fee substantially higher than would otherwise be the case on an ordinary floating rate note issue. The issue will be guaranteed by the triple-A US-based financial guarantor, Capital Markets Assurance Corp, the sources said. The issue will carry a triple-A rating, substantially higher than Hong Kong's sovereign rating of single A, justifying the low coupon. The issue is expected to generate more interest from international investors than similar deals by a number of local institutions in the early 1990s. In 1994, Bank of America (Asia) launched a HK$350 million MBS issue which paid a coupon of 137.5 basis points over Hibor. By the end of the same year, Standard Chartered bank launched a similar $1 billion deal which paid a coupon of 100 basis points. Sources said Dah Sing was considering putting mortgage loans which had been seasoned for less than a year into the pool of mortgages behind the issue. The move takes into account the fact that a lot of home buyers move their mortgages from one bank to another to take advantage of the price war on mortgage rates which has occurred during the last 12 months. This will effectively shorten the expected life of the underlying mortgage portfolio and hence lower the coupon rate paid to investors. The move also contrasts with the practice which will be adopted by the government-owned Mortgage Corporation, which will buy mortgages from banks which have been seasoned for more than a year.
