This page updated regularly deals with securitization developments in Australia. If you have any news or development to contribute to this, please write to me.
More on Australian securitisation
Recent news and additions:
July 3, 2001: On our news page here, we carried some data about the first half 2001 issuance. This was also substantially updated.
May 7 2001: This was was comprehensively revised.
Added 8th April, 2000
The Australian MBS market represents very high quality securities, and yet offers spreads better than the US and UK counterparts – click here for a news report based on an article in Investment Dealers Digest.
Added 22 March, 2000
Two recent mega MBS deals have activated the Australian market – click here for a news report.
Added 4 Feb 2000
Here is an interesting article on Australian Securitization : How and Why it works by Prof Lakshman Alles. The article deals both with the concept of securitization, methodology and structures as also covers the surveys about growth of the market in Australia – click here to read.
Added 3 Feb 2000
Rating agency Fitch IBCA recently released 1999 year-end summary for Australia. Click here for the news item.
Added 17th January 2000
The year 1999 volumes in Australia jumped by some 66% and year 2000 shows more of a promise – see our news report here.
For news about Australian securitisation growth in first quarter of 1999, refer to a news item on our news page: click here.
Securitisation in Australia:
The securitisation market in Australia is now considered to be the second most active in the world after the USA, based on a report by Standard & Poor’s Ratings Group.
Not only has securitisation gained greater acceptance as an alternative source of finance by corporate entities, the cost of funding advantages offered by securitisation compared to more traditional forms of debt financing have prompted the securitisation boom.
Securitisation laws in Australia:
- Australian Prudential Standard (APS) 120 made under section 11AF of the Banking Act 1959 (the Banking Act) By Australian Prudential Regulation Authority
- Covered Bonds issued under Part II, Division 3A of the Banking Act 1959 (Cth)
Asiamoney July-August 2000 published a feature on Australian securitization market which says that securitization is no longer a mere craze in Australia – it is the real gold rush. The article says that the market, which was kick-started in mid-nineties by non-banking home lenders such as Aussie Home Loans, RAMS Home Loans and PUMA has now got more and more bankers in its lure. Securitisation is no longer a mortgage-selling instrument in Australia – it is moving towards bond and repackaging structures well-known in US markets.
In 1999 and 2000, Australia has both mortgage-backed and asset-backed securitisation. In the ABS category, it has seen aircraft securitisation, asset backed commercial paper, etc.
Width and depth of the market
Not only is the Australian market deep enough, what makes it interesting is the innovative instruments being issued over time. Assets securitised in 1996 and 1997 include equity margin loans, auto loan receivables, the excess servicing margin received from a pool of mortgages (which was the first rated deal of its type in the world) and trade receivables. In addition, for the first time, serious thought is being given to the securitisation of project finance assets; if the cash flows to be generated by power and water plans were securitised, it would lower the cost of funds and hence increase the price paid for such assets in a competitive tender process.
Traditionally, RMBS has been the mainstay of Australian securitization, but of late, there have been a number of innovative applications. The Pricewaterhouse Coopers publication Securitisation Report Dec. 2000 says:
“Beyond RMBS, securitisation is being utilised as part of an overall structured finance solution, as a means of financing key assets on a stand alone basis, or as off balance sheet finance structured to match specific investor demand. Interesting examples of this diversification included:
- the David Jones property transaction, which finances the David Jones property and refurbishment off balance sheet using a number of tranches which offer different yield and risk profiles to different markets including the retail market
- resource companies (eg Pasminco and MIM), securitising the proceeds of long term offtake contracts where the end purchaser is highly rated
- property trusts (eg Macquarie Office Trust) tapping directly into the debt markets via rated commercial mortgage backed notes
- the Australian Wine Exchange – securitisation of wine, which gives wine producers early access to capital
- corporate loan securitisation
- infrastructure eg, Brisbane Airport, Latrobe Hospital.”
Mortgage-backed securities market
Even in year 2000, 88.4% of all issues during the first half consisted of RMBS transactions. However, the article by Brian Salter in International Financial Law Review [see Box on the top of the page] says that RMBS transactions account for 67% of the total market and that Australia is the World’s second largest RMBS market.
In July 2000, SG Australia launched the largest mortgaged backed issue to date, securitising high loan-to-value-ratio loans, of A$ 200 million. An important feature emerging in 2000 is that a majority of the instruments are offered to cross border investors.
The Australian ABS market is dominated by asset-backed commercial paper, which itself hinges substantially on the mortgage market. . As at September 30 2000, the ABCP market in Australia consisted of 52 conduits, with programme limits totalling A$56.8 billion and with CP outstanding of A$21.6 billion.
In equipment lease sphere, Orix and Sanwa bank have been active.
Bank loan securitization:
Data released by Australian Prudential Regulatory Authority in its annual report for 1999-2000 said approximately 7% of Australian banks’ collective balance sheets had been securitised.
Taxation of securitization vehicles:
Securitization SPVs will be taxed as per the general law applicable to taxation of companies or trusts, whichever way the SPV is organised. If organised as trusts, the trust can qualify for taxation a a “flow through” vehicle, that is, as a pass through or tax transparent entity provided all the unitholders are currently entitled to the entire income of the trust. That is to say, if the trust is non-discretionery as to its income, it will be a tax transparent entity.
If the trustees have discretion as accumulation of the income or reinvestment of cashflows, the trust will be liable to normal income tax principles.
Australian accounting standards do not directly deal with accounting for securitizations but Australia has generally adopted international accounting standards and the Australian accounting body is a part of G4+1. Most Australian accountants follow IAS 39.
UIG Abstract 28
Following the issuance of SIC 12 [International Accounting Standards Board – see news item here] regarding consolidation of securitization SPVs, the Australian Urgent Issues Group in July 1999 issued UIG 28 to narrate the circumstances under whicn a securitisation SPV will be consolidated with the parent. SIC 12 refers to quasi-subsidiaries and says that if the effective control over an SPV is being exercised by the originator, the SPV ought to be consolidated with the parent.
The Australian Accounting Standards Board is expected to develop a standard on consolidation.