in the news
O’Melveny’s Hogarth Quoted in International Financial Law Review on Indonesia’s Securitization MarketMay 10, 2012 O’Melveny & Myers LLP partner Joel Hogarth is quoted in the May 10, 2012, International Financial Law Review article, “Indonesian securitization set to make a comeback.” Hogarth is the coordinator of the Firm's Indonesia practice and acts as consultant to O'Melveny's associate firm in Jakarta, Tumbuan & Partners, and also maintains an office in Singapore.
The article reports that many lawyers in Jakarta expect Indonesia’s first major cross-border securitization in two decades to relaunch the country’s securitization market. Hogarth told IFLR that with Indonesia’s high mortgage prices and stable economic conditions, the timing is right for a the return of a domestic securitization market. “The possible issuance of cross-border mortgage or asset-backed securities is being discussed,” he said. Hogarth also shared with the publication his prediction that either a commercial real-estate deal or a Japanese-style auto-loan securitization would signal the reemergence of the market, expanding from there to other real estate backed securities as well as other receivables.
Hogarth cited tax as an important consideration, noting that deals that are not structured to take Indonesia’s high taxes into account could be doomed from the start. The article suggests that the most promising structures may be onshore-offshore structures. Referring to the challenge presented by the need to successfully integrate an onshore vehicle with an offshore issuance vehicle in a tax efficient way, Hogarth said: “I’m confident these issues can be overcome, but it’s a major investment for the first player to do this,” Hogarth said. “There are several companies that would like to do this type of deal, but most are not keen on being first to market. It could take up to a year before the first comes to market.”
“Post global financial crisis, securitization can be seen as a bit of a dirty word,” Hogarth added. “But the first layer of securitization often makes lot of sense and introduces much needed liquidity into the market. The product only starts to get a bad reputation once you start to see second and third layer securitizations - these become incrementally more difficult to assess risk and have a less obvious beneficial effect.” Overall, Hogarth told IFLR, Indonesia has very good prospects as an emerging securitization market given the current absence of first-layer securitization.