Cross-border emerging market issuance shifted on a tectonic scale last year, as new markets sprouting in the East fueled a migration of players from Latin America to Turkey, the Middle East and the ex-Soviet Union. To be sure, not everyone set sail, as Latin America produced roughly $3.2 billion in issuance (see table, p. 20). But that included a funding facility and amendment change on an existing deal and, even then, the region's total came well below the $7.6 billion that burst out of the landscape known as EEMEA (see table, p. 18). Turkey alone cranked out $5.52 billion.
"After years of hard work and investment, the Turkish market really took off, and it demonstrated the power of the technology to lengthen and improve the efficiency of financing the Turkish banking sector," said David McCaig, head of European ABS and commodity finance at WestLB, which kept busy there and in Kazakhstan.
The rise of EEMEA had a number of protagonists, chief among them the monoline insurers and the leading Turkish banks. The coupling of these groups came only in 2005. Prior to last year, monolines would hardly throw a glance Turkey's way for one overriding reason: the country's issuers couldn't earn an investment grade from Standard & Poor's on a securitized basis. But in August 2004 the agency upgraded a string of Turkish banks, enabling them to reach investment grade for securitizations. The effects of this move were only fully articulated in 2005, when monolines courted Turkish banks in earnest.
Apart from the familiar emerging market suitors - Ambac, MBIA, and XLCA - other monolines popped into the party as well, some of them new to the asset class of diversified payment rights (DPRs) or at least to a public capital markets deal in emerging markets. Each FGIC, CIFG, FSA, Assured Guaranty, and Radian had its own place at the table during last year's Turkish feast. In all, monolines wrapped $3.2 billion of the $5.5 billion in DPR deals from Turkish banks. In addition, the agencies wrapped $650 million of a deal from Egypt General Petroleum Corp. and $200 million for Kazkommertsbank, a transaction that also stood out as the first capital markets deal from a Kazakh bank.
The EEMEA party didn't include one notable EM player. Sources said that one of the reasons Fitch Ratings didn't rate a single deal in EEMEA over 2005 was that monolines prefer ratings from S&P and Moody's Investors Service. Fitch's absence from the region stands in contrast to its nearly head-to-head position against rivals in Latin America's cross-border market and its resolute dominance of domestic markets in Mexico and Brazil, places where securitization issuance has been growing briskly.
Wasif Kazi, a director of European structured finance at Fitch, says the agency shouldn't be discounted from EEMEA's securitization game. "We expect to be more active this year than we were last year on the existing asset and future flow side," he said. Kazi mentioned in particular the looming RMBS market in Turkey, a sector that has a number of players licking their lips. When they materialize, RMBS in Turkey are widely projected to be cross-border because of poor liquidity for non-governmental issuance in the domestic market. "We expect to be involved in a lot of [RMBS] as long as there isn't an extraneous reason [blocking us from entering]," Kazi said. He added that Fitch is the only one of the three agencies with an office in Istanbul, and provides coverage of the country's largest corporates and banks
As in EEMEA, DPR deals dominated Latin America's cross-border market in 2005 (see table, p.20). A couple of the usual suspects from Brazil, Banco Itau and Unibanco, made their appearance, with the latter issuer placing an unorthodox transaction. The bank closed a facility that it can tap for up to $200 million during a two-year revolving period. Banco de Credito del Peru also hopped on to the DPR bandwagon, supplying paper from a quieter corner of the continent.
Two existing asset deals from Mexico added color to the cross-border mix. The country whose securitization market has turned inward yielded a $210 million deal from Metrofinanciera and a $100 million A tranche from Su Casita, both backed by bridge loans for construction. With their appetite for Mexican ABS whetted by these deals, foreign investors might be keen to buy more, sources said.
Central America also produced a couple of transactions with multijurisdictional features. Credomatic, for one, re-opened an existing deal for an additional $275 million. The transaction is backed by electronic or paper transaction vouchers generated by the use of foreign credit and debit cards in Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Similarly, El Salvador based Banco Cuscatlan issued a $100 million DPR deal, drawing on receivables from Panama, Hounduras, Costa Rica and Guatemala, apart from the bank's host country of El Salvador.
In the aggregate, the cross-border arena was again overshadowed by developments in the domestic markets of Latin America. While Moody's aggregate cross-border figures differ from ASR's, the agency's numbers still illustrate the stellar performance of local currency markets vis-a-vis foreign issuance. Domestic markets absorbed 84% of total ABS and MBS issuance in Latin America in 2005, the agency said in a report. Brazil epitomizes the trend, with cross-border securitization volume dropping 46% in 2005, while domestic volume swelled 140%.
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