Taiwan reit and bond markets set for growth
Taiwan's structured finance market is set to grow this year, driven by bond and real estate trust issues.
A current slowdown in the sale of personal loan portfolios will be offset by an uptake in Taiwan' s new real estate investment trust (reit) market, which saw its first three offerings last year.
At the same time, a slew of collateralised bond obligations (CBOs) in the first half of this year will drive the momentum begun last year, but is expected to trail off towards the end of the year.
Ratings agency Moody's expects a 10 to 15 per cent growth in reit offerings this year based on deals already in the pipeline.
Three separate reits issued by insurance firms Fubon, Cathay and Shin Kong last year totalled US$940 million, according to Moody's, with those reits backed by just a handful of individual properties.
Shin Kong Financial's Reit No 1 issued in July last year was valued about US$360 million but backed by only four properties. By comparison, reits in Australia and the United States are often backed by hundreds of properties, while reits in Singapore may start with few properties but grow in size.
'The trend [in Taiwan] is for fewer properties, but with the passage of time, we'll see more and more properties [within a portfolio], for example properties to be developed,' said Marie Lam, vice-president and senior analyst at Moody's.
Under Taiwanese law, reits are closed and can only invest in already-developed properties, although they can borrow money. They act as equities instead of debt because they do not guarantee a return, with yields linked to the performance of underlying properties.
A bill expected to be put to Taiwan's legislature this year will allow subsequent fund-raising by a given reit, and the funds can be used to invest in undeveloped properties.
The new rules will allow greater flexibility and encourage more property owners to bring real estate assets to market.
'Reits are becoming popular because they're a good way to convert something illiquid into cash,' said Ms Lam.
A further offering of reits this year, including those offered by financial institutions and developers, is expected to make up for a current decline in offerings of personal loan portfolios.
Taiwan's credit card and cash card markets have faced a credit squeeze in the past year, mirroring the experience of South Korea which saw financial institutions write off billions of dollars in unpaid personal loans.
Last week, American Express announced it would not issue any more credit cards in Taiwan until the credit situation improves.
'In 2006, we won't see many transactions until the situation settles down,' said Ms Lam. 'We haven't seen the peak yet, the performance of Taiwan credit cards will continue to worsen.'
The most likely area of transaction momentum is expected to be in CBOs, with corporate bonds and financial debentures coming to market in the next few months as bond funds divest their structured bonds.
