Eskan Bank launches Bahrain's inaugural BD30 million residential mortgage backed securitisation transaction

Potentially also the first of its kind in the GCC region, this landmark transaction involves the issuance of BD30 million worth of conventional Residential Mortgage Backed Securities ('RMBS Bonds') backed by a pool of social mortgage loans disbursed by Eskan Bank to eligible Bahraini citizens.

Amidst the current volatility in the global financial markets spurred by the meltdown of the sub prime mortgage markets in the United States, Eskan Bank's RMBS transaction received encouraging support from investors. The RMBS Bonds, carrying maturities of 3,5,7 and 10 years were 1.74 times subscribed by local investors comprising financial institutions, insurance companies and government linked funds when launched in the market.

The RMBS transaction is a clear milestone in the growth of Bahrain's financial markets. It signals debt market players' readiness to accept structured finance products and their willingness to subscribe to longer dated debt instruments. The transaction is also the first securitisation transaction approved by the Central Bank of Bahrain under Bahrain's Trust Law passed last year.

The mortgage assets securitized are well insulated from the downturn of the US sub
prime mortgage markets given that the Bonds and the monthly collections from the loan portfolio are denominated in Bahraini Dinar. Furthermore, the GCC region's exposure to the sub prime market is minimal and any effects arising therefrom are well mitigated by the availability of excess liquidity in the region.

A special purpose vehicle, Eskan RMBS Company BSC (Closed) ("Eskan RMBS") has been incorporated as a wholly owned subsidiary of Eskan Bank to act as the Issuer of the RMBS Bonds. In this transaction, Eskan Bank shall transfer a pool of mortgage loans valued at approximately BD100 million to Eskan RMBS on a true sale basis. Eskan RMBS will issue RMBS Bonds to investors to raise the funds required to purchase the mortgage loans. Collections from the mortgage loans shall be used by Eskan RMBS to service interest and redeem the RMBS Bonds upon maturity.

The assets securitized possess certain unique features commonly found in social housing loan portfolios in emerging markets. Issuance of Amiri or Ministerial decrees may lead to reductions in monthly installments or extensions of loan tenor. Often too these loans are insulated from foreclosure proceedings and are not always backed by adequate insurance policies to cover unexpected events such as fire, death or other natural disasters. Should any of these special events occur, the Ministry of Finance has provided an undertaking to replicate the cashflows affected or it shall instruct Eskan Bank to replace the mortgage loans affected.

Speaking at the singing ceremony here today, H.E. Fahmi Ali Hussain AlJowder, Chairman of Eskan Bank and the Minister of Works and Housing said the RMBS transaction is undertaken with the broad objective of adding depth and breadth to the local and regional capital markets. It is expected to produce a benchmark yield curve to
facilitate issuance of future RMBS Bonds both by Eskan and other mortgage providers in Bahrain and in the GCC markets.

Mrs. Sabah Al Moayyed, General Manager of Eskan Bank says the transaction is in line with Eskan Bank's strategy of providing effective solutions to develop the country's real estate sector. She further added that the transaction shall form the catalyst for the creation and establishment of the National Mortgage Corporation ("NMC") under the Mortgage Guarantee System which is expected to be launched shortly. She said that future securitization transactions shall be undertaken by the NMC to encourage the growth of the mortgage market and ensure that the Bahraini citizens benefit from the excess liquidity available in the capital markets. Total owner equity now reached BD 148 million, with an asset lease of BD 217.5 million.

Eskan Bank a specialized mortgage bank was established in 1979 with an authorized capital of BD40 million and paid up capital of BD15 million. Since inception, the bank has been involved primarily in advancing housing loans to Bahraini nationals under the social housing program as approved annually by the Ministry of Works and Housing. Over the last two years, Eskan Bank has transformed itself from an institution that only provides social loans into a commercial bank with multiple commercial activities. The Central Bank of Bahrain has issued Eskan Bank with a new license to allow the bank to pursue its expanded activities.

The Principal Adviser / Lead Arranger and Lead Manager is Aseambankers Malaysia Berhad, the investment arm of Malayan Banking Berhad ("Maybank"), Malaysia's largest commercial bank. Aseambankers structured Malaysia's first RMBS transaction for Cagamas Berhad, the country's national mortgage corporation and more recently was involved in the synthetic securitization of Maybank's small and medium enterprises loan, the first of its kind in South East Asia.

Ohad Trusts Corporate and Financial Services WLL ("Ohad") has been appointed as the Trustee for the transaction. Ohad is the sole company awarded with a trust licensed by the Central Bank of Bahrain.