In what will come as a major blow to the prospects of a securitization market developing in the Philippines, the $175 million transaction backed by equity rental payments for Metro Rail Transit Corp has been called off indefinitely, a banker familiar with the deal told FinanceAsia.
Lead manager HypoVereinsbank took the decision to pull the deal after it became clear that the legal and documentation issues that had already caused serious delays to closing could not be resolved, putting paid to around 18 months of works by the bank to try and get the deal done.
Initially, the members of the consortium that make up the MRTC, which was responsible for constructing the railway that runs over the EDSA highway in Metro Manila, had pressed Hypo to complete the deal by March 7.
This deadline became untenable when some members of the consortium failed to sign vital documents on time. A new date of March 26 was set, while representatives from Hypo flew to Manila to try and emphasize to the MRTC consortium quite how serious the failure to sign on time could impact the success of the transaction.
In the end however, it would appear that this was not the deciding factor in calling time on the deal, it was more a case that remaining documentation issues which would seriously impact the legal soundness of the transaction - essential to any ABS deal - would not go away at anytime soon.
Rather than take a flier on closing the issue in the hope that these issues would not come to light during the life of the deal, Hypo felt this was not a risk worth taking.
"If there was any way to avoid this situation, I am sure it would have been taken," says one banker familiar with the deal. "But given that there were problems that just wouldn't go away, then I'm sure that it was the right call to make, no matter how tough it was to do. It was definitely better to do this now rather than try to deal with ongoing difficulties when the deal had already closed."
Hypo will now have to face the added problem of appeasing investors that had already placed orders for the bonds. It will also be interesting to see what, if any, effect the failure to get the MRTC deal done will have on the domestic securitization market. The Arroyo administration has made the proposed securitization law a top priority, and although there have been delays to this; its passage through Congress is expected in June.
There has been some suggestion that domestic investors were not overly enthused by the MRTC deal or, at this point in time, the merits of securitization generally as a sound investment. It will take some good PR work on behalf of those parties that want to see an active Philippine ABS market develop to make sure that investor confidence is restored.
