Wharf (Holdings) is to raise about US$575 million by securitising the rental income on three million square feet of commercial space in Harbour City. It will be the largest commercial mortgage-backed deal in Asia. Lead manager Merrill Lynch yesterday launched a series of roadshows in Hong Kong, with plans to go to London later this week and New York next week to market the instrument to international investors. The issue will be keenly watched by the market and could set a fund-raising example for other blue chips. Analysts said the deal would enable Wharf to tap the capital market for cheaper funding following its credit-rating downgrade last year. The conglomerate had heavy borrowings it needed to refinance this year and securitisation provided an alternative amid a tight credit environment. In December, Wharf executive director John Hung said the group had had difficulty raising new funds amid tight liquidity in the banking industry and a depressed equity market. The deal is to securitise the commercial rentals of Harbour City, Wharf's office and shopping complex in Tsim Sha Tsui. The portfolio being securitised comprised about three million square feet of office and retail space in the development, sources said. It included Ocean Terminal, Ocean Centre, New T&T Centre, World Commerce Centre, World Finance Centre, Ocean Galleries and the newly completed retail portion of Gateway II. Wharf officials would not comment on the issue. The offering will be split into three tranches, with an expected tenure of five years, and investors will have a choice of US dollar or Hong Kong dollar paper. The senior tranche would total at least US$300 million, which would be overcollateralised to achieve a triple-A rating. The two other tranches are expected to be rated double A and single A. The pricing is expected to be finalised in the last week of this month. Analysts said the going rate for triple-A securities was about 150 basis points above the London interbank offered rate (Libor), while that for a double-A issue was 250 basis points above Libor. They said Wharf's gross debt was estimated at HK$30 billion. One said about 16 per cent of the gross debt, or HK$5 billion, would be due this year. Some analysts said the securitisation could also provide funds for new capital requirements, as Wharf was likely to settle land premiums with the Government on the San Miguel site redevelopment and the airport railway's Kowloon Station phase two project this year. Continued declines in commercial rents and a drop in new property development for sale were putting pressure on Wharf's earnings prospects, they said. Others said these investment risks had been factored in and were reflected in the stock price's underperformance.