Ways to support sustainability was a consistent theme for many of the sessions on Day 2 of the ASF 2024 conference in Sydney yesterday. However, as panellists explained, there is plenty more work to be done.
The concept of "green bonds" being created from electric car loans spilled over into a discussion on the emergence of the next big asset class – that is, auto ABS – as issuers, borrowers, lenders, investors, dealerships and manufacturers all wrestled with how the increasing penetration of electric vehicles into households will play out.
Initially, the talk was all about how auto ABS was having another year of strong issuance,
tracking at about A$11 billion, similar to last year.
Ian Bettney, portfolio manager at Janus Henderson Investors, based in the UK, noted that "auto ABS in Australia really does stand up well [against UK]: for prime auto ABS versus prime RMBS, issuers] could be paying 15 to 20 basis points wider in Australia."
He asserted that there should be some form of pricing tension if the experience of the UK is anything to go by. "Equivalent assets in the UK are trading at much closer spreads," Bettney said.
Bettney also suggested that a top-rated ABS is comparable to five-year senior unsecured paper but again, in comparison to the UK last year it was 40 bps over. Since then the price has crunched in a further 10 basis points.
Then, panellists were asked if there was any incentive for an issuer to do a green only deal – that is, a securitisation deal consisting entirely of electric and hybrid vehicles. Or even a "green only" tranche?
Howard Sun, vice president, securitised products at MUFG Bank noted that one in ten sales is now an electric vehicle, not just the Teslas as we saw a few years ago.
Although that was where the interest started and stopped: "Based on our investor roadshow experience, it would be better to have a mix of vehicles, especially in view of the resale price risk," Sun said.
At a later panel session concentrating on sustainability, this same question of electric vehicle uptake in Australia was also raised. "The resale market for EVs needs to be worked through in Australia, along with charging facilities and finding a measure for battery life," said Elly Ko, head of consumer funding at Humm Group.
"Once consumer confidence grows more EVs will be sold."
At the same panel, covering next steps for sustainable securitisation, questions of what constitutes a green RMBS deal were also considered.
Top of the list was FirstMac's incentive to home owners to install solar power and receive a discounted home loan. These loans were then securitised in June as part of a $1.2 billion RMBS deal, with $306 million in green bonds.
Koe: enough scope in the addressable market take-up should increase also as older panels wear out and new ones will be required.
Margot Kelly, senior manager of Securitisation at Firstmac told the conference that her company has received a lot of reverse inquiries on the back of the two RMBS deals we did earlier.
"We've often been asked about auto ABS deals, but most of those inquiries have been based around to novated car loans, which we don't do," she said.
Other panellists saw further opportunities:
"There is enough scope in the addressable market – take-up [of sustainable lending] should increase as older panels wear out and new ones will be required," said Lionel Koe, ING's head of asset securitisation, Asia Pacific.