Opening Address by Mr Lee Chuan Teck, Executive Director, Financial Markets Strategy Department, Monetary Authority of Singapore , 29 November - 1 December 2005

1   Good morning. It is my pleasure to be here today at the 4th Securitization World Asia conference. I would like to extend a very warm welcome to all of you, especially to our visitors from abroad.  I would also like to congratulate Terrapinn for this large turnout. 

Asian Markets Development

2   1998 was a water-shed year in Asia because of the financial crisis.  The New York Times called it a time of awakening for Asia.  I'm not sure if that is correct, but if it was an awakening, it was certainly a very rude awakening.  The chaos that started in the currency markets, some of you may recall, quickly reverberated through the stock market, the banking sector, the corporate sector and eventually to street protests and violence.  Thankfully, Singapore was relatively unscathed, but we too had our moments of anxiety and economic pains. 

3   A crisis is never a good thing, but I think some positive lessons did emerge from '98.  One of this was the recognition that Asian borrowers had been too reliant on bank-financing.  This made our financial system inherently unstable because credit risks are concentrated on the banking sector.  When the banking system seized up, as it did in '98, there were no alternative channels for funds. 

4   Two weeks ago, I attended a BIS conference in Kunming, China.  11 Asian central banks were represented and the common sentiment there was that we need to further develop our debt capital markets to provide a viable alternative source of financing for the private sector - what Alan Greenspan referred to as a spare tire for financial intermediation.  Furthermore, it was also recognized that a plain vanilla bond market is not enough.  Only governments and large conglomerates can readily and economically issue unsecured debt securities.  The market remains relatively inaccessible to the majority of borrowers.

5   Here is where securitization comes in.  In my view, securitization expands the accessibility of the debt market to the 2 extreme ends of the spectrum of borrowers.  On one end, the very large, very long-term financing for real estate development and for infrastructure projects - building dams, roads, power-stations and so on.  On the other end, very small borrowers like SMEs, home owners and consumers.  Allow me to elaborate a little bit on both.                   

6   First, infrastructure financing.  A study by the Asian Development Bank, estimated that East Asian countries will spend $165 billion per year on infrastructures over the next 5 years.  Currently, most of the funding is done by the state or a state-owned enterprise that in turn issues government debt or takes on bank borrowings.  But as governments seek to better manage their fiscal positions, I believe the usage of asset-backed financing will gradually gain favour.  One notable example was Thailand.  In April this year, Thailand announced that it is constructing a government and commercial building on Chaeng Watthana road.  Instead of funding the project from the public budget, they are issuing up to THB24 billion worth of asset-backed bonds.  I think we will see more of such projects going forward.

7   Private investors also appear to have good appetite for such infrastructure investments.  In May this year, Macquarie listed an International Infrastructure Fund in Singapore.  The launch was very successful, raising S$730 million and oversubscribed by almost 18 times.  In Nov, they returned to the market to raise another S$435 million. 

8   At the other end of the borrower spectrum, securitization can also extend the capital market financing to small borrowers.  In Asia, the collateral has so far been mostly confined to residential mortgages and non-performing loans.  But the range is gradually expanding.  For example, China Development Bank, issued the country's first CLO, backed by performing loans.  In Singapore, we launched the SME Access Loan Scheme in April this year.  The plan is to help SMEs gain greater access to the capital markets by issuing bonds backed by SME loans.  The first issue is expected to be sold in 1Q06.

9   The prospects for securitization in Asia are thus, very promising.  What then, can the authorities do to promote the development of this market?   Singapore's approach has been to focus on 2 main areas.  First, the rules of securitization need to be clear for all participants.  Both investors and originators need to have their rights and responsibilities clearly spelt out.  Only then will new players be drawn in and will the market grow in a sustainable way.  The REIT market in Singapore was a good example.  In 2000, we introduced the Property Fund Guidelines to layout the governance structure for REITs.  Since then, seven REITs had been listed on the SGX with an aggregate market capitalization of approximately S$11 billion.  Just last month, the guidelines were revised: Partly to enhance investor protection, by strengthening the oversight of managers and partly to help REIT managers, by facilitating overseas and partial acquisitions.  The revised guidelines are expected to further boost the market's growth.

10   The second area is taxes.  In 2004, we introduced a tax incentive scheme for Approved Special Purpose Vehicle (ASPVs) engaged in asset securitisation transactions.  The scheme helped to address possible tax disadvantages that a SPV may face, as a result of mismatches in timing between the receipt of income and the payment of expenses.  We also introduced several tax incentives, specifically to promote the REIT market.

11   Our two-pronged effort has borne fruit.  The asset securitization market in Singapore has grown substantially - about five times in size since 1999. ABS issuance amounted to more than S$7 billion in 2004, almost 1/3 of total S$ private issuance.  There is also an influx of innovative synthetic CDO into our market. The first S$-denominated synthetic CDO was initiated in August last year. In January this year, a US$12 billion CDO of CDOs portfolio was also launched.

Conclusion

12   In conclusion, the outlook for asset-backed securities in Asia is very optimistic.  The markets in Korea and Japan have already developed substantially.  But more opportunities abound in China, India, Indonesia and other parts of South East Asia.  This provides an exciting backdrop to today's conference.  

13   On that note, I wish you a very successful and fruitful conference. Thank you.