Natixis serves Asia new, improved originate-to-distribute model
21 May 2013
News, Asia, Global, USA, Europe
By Toby Garrod
Following a broad market backlash against the originate-to-distribute model, on account of its role as a driver of loans to the uncreditworthy in the US subprime debacle, products are now enjoying a global resurgence in popularity as financial institutions move to reduce principal-agent issues, allowing continued access to the benefits of rapid loan turnover and lighter balance books. While investor interest is growing globally, Asia and Europe are displaying particular capacity for gains thanks to the more nascent markets there, says François Riahi, CEO of corporate and investment banking Asia-Pacific at Natixis in Hong Kong.
“If you compare debt funding between the US and Europe, there’s a big difference. The US market debt for corporates is weighted two-thirds bonds and one-third loans, while Europe is lacking progressiveness, being almost exactly the reverse," he says. "As such, Europe is changing its strategy. Banks are increasingly seeking to keep loans off balance books, by originating them and selling most of the loans to the market, be it plain vanilla loans or structured finance. In Europe there are a lot of new funds being created in order to buy loans from the banks, especially in infrastructure, and this is an important trend that is now emerging in Asia.”
In Europe, Natixis has signed a partnership with Ageas, a Belgium-based insurer ranked among Europe’s top 20 insurance companies, on infrastructure assets for a target amount of 2 billion euros (US$2.57 billion) over three years. Under the partnership, Natixis will originate and structure infrastructure loans based on mutually agreed upon selection criteria, allowing Ageas to invest in each loan.
Perhaps in acknowledgement of the principal-agent issue, Natixis will retain a substantial, predetermined share of each loan, giving it a vested interest in ensuring higher loan quality. Natixis will then be responsible for servicing and administration of the loans over their maturity.
“While such structures do not yet exist in Asia, there’s real interest among investors,” says Mr. Riahi. “Asian investors are looking for yield and for better risk return assets, and structured finance flows are definitely good candidates for that, including; loans for infrastructure, aircraft, and acquisition finance. We really see an opportunity for this new channel of distribution in Asia.
“The key markets for investors are Japan, Korea, Taiwan and Australia, where there is demand for the longer dated maturities. These kinds of assets are very well suited to life insurers and pension funds, because they are long-term, and match the duration of their liabilities.”
While life insurers in Asia still have regulatory issues to resolve before they can become players in the market, he says, these markets are really taking off in Europe.
“There are two ways to be players in the primary market for investors: either by creating a team that originates deals, but that is very costly and not really their business, or by working with banks, as we did with Ageas, in a partnership. The alternative for investors is to source loans from banks in the secondary market.”
Regarding demand, he says, we are seeing interest among Asia investors in relation to loans coming from the US and Europe; we are already selling to some Asian investors, so we know the demand is here.”
More News >