Standard & Poor's Ratings Services assigned its ratings to securitisation transactions (excluding credit derivative products lacking issuances of bonds or trust certificates) worth a total of JPY3,980.7 billion in Japan in 2004, an increase of 20.9% from 2003, and close to the record high set in 2002, according to a report published today. The number of rated issues rose significantly by 51.8% to a record 249. "The value of RMBS transactions rated by Standard & Poor's increased considerably, up 44.1% year-on-year and accounting for 35% of total issues," said Kenji Kondo, a director at Standard & Poor's and co-author of the report.

"CMBS transactions almost doubled and CDOs saw rapid growth in the number of transactions," he added.

New types of securitised assets in 2004 included maintenance auto leases, whole businesses, and apartment loans. In addition, there were many repeat deals, in which originators issued additional transactions under the same scheme.

The year was also characterised by active discussions over improving the infrastructure of the domestic securitisation market. The Bank of Japan held a "Workshop on Securitisation" from 2003 through 2004 aimed at supporting the development of the market, focusing on information disclosure, which is essential to improving liquidity. Standard & Poor's believes that these efforts will help further promote discussion and lead toward a more mature securities market in Japan, as well as help enhance infrastructure, including related legal systems.

In 2005, Standard & Poor's expects total issuance in the overall domestic securitisation market to climb to JPY6.4 trillion, up from JPY6 trillion in 2004. CMBS and RMBS transactions are likely to drive market growth, with an expected increase in CDO transactions. In addition, issuances of new types of transactions such as "business securitisations" are also expected. Recently, the investor base for securitisation products has extended to pension and other types of funds, and an appetite for relatively lower-rated tranches has begun to emerge. In this sense, a key issue for 2005 will be to what degree participation in Japan's securitisation market increases.

Copyright Reuters, 2005