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Fitch Ratings
Welcome to the Asia-Pacific Structured Finance Newsletter. This newsletter presents a quick summary of structured finance news and developments in APAC each month.

Feel free to give us feedback on the newsletter and what you would like to see in it.

Ben McCarthy | APAC Structured Finance Analytical Group Head

I was on the road in February, spending a week in India and conducting investor roundtables in Australia on our Global Housing and Mortgage Outlook.

Liquidity is tight in India, particularly in the non-bank sector. The problem started in September with the default of Infrastructure Leasing and Financial Services Limited (IL&FS), an infrastructure focused non-bank financial institution. IL&FS funded a significant amount of its debt in the short-term market and its default raises questions about the health and funding profiles of all other non-bank finance companies.

Fitch rates ABS transactions for a small number of non-bank finance companies in India and all have been affected to some degree by the tight liquidity – with the main result being more expensive funding. The faster paydown profile of the auto loan receivables means these companies have a natural source of liquidity, although all are looking at their funding profiles to ensure they have sufficient and sustainable liquidity. Importantly, asset quality has not suffered during this period and rated transactions continue to perform well.

Many non-banks were particularly interested in alternative avenues for funding, and covered bonds and ABS are gaining prominence in the current environment. There is some discussion of expanding the ABS market in India as the matched funding inherent in the product is very attractive to issuers.

In Australia, investors were interested in the observation that the twin issue of inflated property markets and high household debt was not unique to Australia, but is a global phenomenon brought on by sustained economic growth and very low interest rates. While Australia did have the highest household debt-to-GDP ratio in the study of 24 countries at 121%, another four countries in the study (Canada, Denmark, the Netherlands and Norway) had debt to GDP ratios of over 100% and another four (New Zealand, South Korea, Sweden and the UK) exceeded 85%.

Fitch forecasts Australian property prices to continue to fall by another 5% on a national basis in 2019 before levelling off in 2020 as demand returns on the back of better affordability and sustained population growth. The 2019 version of the Global Housing and Mortgage Outlook report is available for subscribers here.
Latest Research
China's Securitisation Market Continues Growth Momentum
Fitch Ratings says in the China Structured Finance Quarterly – 4Q18 report that China's securitisation market continued its growth momentum in 2018, with increasing new issuance, deeper foreign-investor participation and positive regulatory developments

China Auto-ABS Performance Stabilised in 4Q18
Fitch Ratings says in the Auto ABS Index – China 4Q18 report that the annualised gross loss and delinquencies of China's auto-ABS transactions stabilised in 4Q18 after climbing from a very low base for almost a year. Despite the slight improvement, the agency noted a divergence in the originators' performance under the current challenging environment.

Bank Royal Commission Neutral for Australian Structured Finance
Fitch Ratings says the final report from Australia's Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, if implemented, is likely to have little overall impact on Australian structured finance.

Australian Mortgage Arrears Stable in 4Q18
Australia's 30+ day mortgage arrears were unchanged at 1.05% in 4Q18 from the previous quarter, and 4bp lower from the year earlier, following Australia's strong economic environment and lower standard variable interest rates for owner-occupied lending.

4Q18 Australian Auto ABS Arrears Hit Record High; Losses Stable
Australian prime auto-ABS arrears rose to record highs in 4Q18, with loans overdue by more than 30 and 60 days increasing to 2.05% and 1.03%, respectively.

Australian Covered Bonds to Benefit from Proposed TLAC Recapitalisation Buffers
Covered bonds in Australia are set to benefit from additional buffers against recapitalisation events for the purpose of resolution, Fitch Ratings believes. This follows a discussion paper issued by the Australian Prudential and Regulation Authority (APRA) proposing to increase banks' total loss absorbing capacity (TLAC).
As part of our Risks to Watch series, Suzanne Albers, Senior Director on the Structured Finance team, discusses key credit concerns across global housing markets over the next 12 months.
Kevin Duignan, Head of Financial Institutions, discusses the outlook for aviation across corporates, financial institutions, and structured finance with Craig Fraser, Nathan Flanders, and Hylton Heard.
Key Rating Actions

Fitch Ratings has assigned a final rating of 'BB+' to India-based Shriram Transport Finance Company Limited's (STFC, BB+/Stable) USD400 million 5.7% senior secured notes due 2022, which carry a fixed-rate coupon payable semi-annually.

Fitch Ratings has assigned a 'BBB-(EXP)sf' expected rating with a Stable Outlook to Indian Receivable Trust Jan 19 A's INR4.2 billion Series A fixed-rate pass-through certificates (PTCs) due June 2023. The issuance consists of notes backed by commercial-vehicle loans originated by Tata Motors Finance Limited (TMFL), which also acts as the servicer for the transaction. 

Global Structured Finance

Late Cycle Risk Building for CLOs & Leveraged Loans
The sector outlook for CLOs and leveraged loans in the U.S. and Europe is stable in 2019; however, increasing late cycle behavior and macro and regulatory activities are noteworthy concerns, according to Fitch Ratings outlook report for CLOs and leveraged loans.

Lev Loans and CLO Investors Focused on Downturn, Regulations and Docs 
"Conditions remain favorable toward investment in leveraged loans and CLOs as we head into 2019, as Fitch expects a benign default environment and more rate hikes, but risks are building as increasing leverage coupled with looser documentation usher in lower recovery expectations".  
Asset Classes
Hong Kong
20 Mar
Beijing, China
30-31 Mar
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