OCBC Bank has launched Pioneer Funding, a special purpose vehicle (SPV), designed to enable the bank to securitize up to S$2.5 billion worth of loans, securities and derivatives products it has issued to customers.
The bank will assign these assets to Pioneer, which will then issue notes secured on the assets. These notes will then be sold to institutional and sophisticated Singapore investors. Pioneer has set up a 15-year note program that can issue notes in Singapore dollars and a range of other currencies and also with long or short maturities. The notes will be issued in series and secured on underlying assets that have been chosen to meet specific investor’s needs. The notes of one series will be protected from the claims on notes of another series, giving investors more comfort over the credit of their investments.
Pioneer will be owned by a charitable trust. OCBC Bank is acting as financial advisor to Pioneer and will manage its note programme. In this way, OCBC Bank will earn fees for its services. Dexia Trust Services will act as trustee to Pioneer, as well as providing management, administrative and accounting services.
Pioneer is in the process of selling the first series of notes, which will be valued at S$30 million and have a maturity of four months. They will carry a yield of 2.6%, or 30bp in excess of the yield of the underlying asset – a 5-year, mortgage backed issue for the Jurong Point property development.
“We expect strong demand for Pioneer’s services given the flexibility it will offer institutional and sophisticated clients in choosing their preferred investment instruments based on their objectives and risk appetites,” says George Lee, head of corporate and institutional banking and capital markets at OCBC Bank. “This SPV is further differentiated by the segregated feature of each series and the protection it offers each client from the claims of other clients.”
This issue looks very similar to commercial paper products in the US and Lee agrees that he expects the main buyers of Pioneer’s notes to be cash rich companies looking for a short-term investment, which will have higher returns than bank deposits but also consequently higher risks. OCBC Bank will make its money in the fees earned from repackaging the debts, not in selling assets from its own balance sheet.
Lee stresses that Pioneer has come about coincidently with the bank’s bid for Keppel Capital Holdings and is not about selling assets to raise money for the acquisition. OCBC has been planning Pioneer for over nine months and says it is about adding sophisticated new issues to its product range -- not selling loans off its balance sheet to raise acquisition finance.
Pioneer is planning to issue four or five new series of notes in the next six months, which will all be secured by mortgage backed bonds with maturities of three to five years that have been bought in the secondary market. After that, Lee is considering packaging up loans and credit derivatives to enhance the yield and diversify the credit.
This type of note issuance is relatively new in Singapore. DBS launched a retail product called 'Money Plus' in 2000, which collateralized and sold loans and bonds to Singaporean retail investors. However these notes could only be backed by rated securities and could only be denominated in Singapore dollars.
