Landmark bond issue by Cagamas


  • Business
  • Saturday, 25 Sep 2004

BY SIDEK KAMISO

CAGAMAS MBS Bhd, a wholly-owned unit of Cagamas Bhd, created Malaysian capital market history yesterday when it launched the country’s first-ever residential mortgage-based securities (RMBS). 

The issue, which will have a total value of up to RM1.8bil, is expected to be introduced in the local capital market in mid-October. 

“This is a benchmark issue, and we expect it to lead to a price discovery that will allow other issuers to price such bonds in the future,” Cagamas chief executive office N. Kokularupan said. 

The Cagamas RMBS is a secured, fixed-rate serial bond comprising a series of maturities on the third, fifth, seventh and tenth anniversaries of the issue date. For the purpose of this issue, the Government's Housing Loan Division has sold part of its loans portfolio, which has an outstanding mortgage balance of RM1.935bil, to Cagamas MBS. 

Cagamas MBS, which is a limited purpose entity, will issue a minimum of RM1.5bil fixed rate bonds to fund the purchase. 

N. Kokularupan

At a press conference to announce the deal, Kolularupan said the first-ever issue of the bond could pave the way for similar issuances from the Government in the future. 

He said besides the RM1.94bil in housing loans sold to Cagamas MBS, the Government currently has some RM25bil worth of housing loans that it had issued to civil servants. 

“All these loans can be structured into RMBS,” said Kokularupan 

Asked whether the Government would convert its remaining loan portfolio into RMBS, Kokularupan said it was up to the Government. “The Government will decide on the actual timing of the next issue,” he said. 

He added that it was difficult to give the exact time frame because it would be based on the Government's needs. 

For the inaugural issue, Cagamas MBS appointed three lead managers – Aseambankers Bhd, CIMB Bhd and Standard Chartered. In addition, Bumiwerks Capital Management Sdn Bhd, a boutique financial advisory company, acts as financial adviser.  

“Pricing is not expected to be known until the middle of next month, and it will depend on the response from investors,” Kokularupan said, adding that given the high quality asset – rated “AAA” by both Malaysia Rating Corp and Rating Agency Malaysia – the issues would garner significant interest. 

From left: Standard Chartered Bank head of fixed income Malaysia Hijah Arifakh Othman, CIMB excutive vice-president & co-head debt market & derivatives Thomas Meow, Bumiwerks director Chong Tan, Cagamas CEO N.Kokularupan and Aseambankers vice-president head of debt and capital markets John Chong

Aseambankers vice-president John Chong said considerably high demand could be expected for such issues, but the actual pricing would very much depend on the book building exercise. 

“It is safe to say that pricing could follow the Malaysian Government Securities (MGS), which also carry the same AAA rating,” he said. 

The RMBS was also considered a superior portfolio because it has a “zero” chance of loss. For the purpose of the issue, the Government's housing loan department would credit all payments from housing loan borrowers to Cagamas MBS every quarter. 

These payments have almost zero default, being made through salary or pension deductions. At the same time, the mortgages under the scheme were also covered by mortgage reducing term assurance insurance policies, which would pay the balance of the mortgages should the policyholders die. It also has a negligible gross historical actual default of 0.05% from bankruptcy, and 0.008% from imprisonment. 

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