Displaying a cozy name and friendly cartoon beaver outside each branch, Su Casita - "your little house" - has drawn tens of thousands of low-to-middle income Mexicans to its doors. The company is a Sofol, the shorthand for housing finance companies that extend residential mortgages and bridge loans for construction (see article p. 1). Notwithstanding the cutesy marketing, it has aggressively grown over the last couple of years. Established in 1994, Su Casita became the second largest Sofol after swallowing a peer, Financiamiento Azteco, in July 2001. Then came last year, when asset growth outstripped the industry average, leaping 56% to Ps13.6 billion (US$1.3 billion). Mortgage loans account for about 84%, while bridge loans for construction make up the rest.
Among the milestones in 2002 was the company's first genuine securitization of bridge loans, a Ps672-million deal that priced last October (see ASR 11/4, p.19) via Deutsche Bank. To date, Su Casita has tapped the markets for Ps1.6 billion (US$147 million), including CPs and quasi-securitizations.
At the sidelines of the World Bank conference, "Housing Finance in Emerging Markets," ASR interviewed Su Casita Vice President Manuel Campos. A graduate of M.I.T.'s Sloan School of Business, Campos held forth on the financing plans for this year, growth challenges down the road and the prospects for eventually crossing the Rio Grande for funds.
Following is a Q&A with Campos.
ASR: Given that state housing agency Sociedad Hipotecaria Federal is phasing out funding for construction bridge loans (see article p. 1), what are your financing plans for this year?
Campos: Since the SHF is pulling out, we'll have to come to market within the next few months. Our plans are to raise about 2 billion pesos [US$184 million] this year in the market for funding construction bridge loans. We had been already been preparing for the SHF's withdrawal last year. In 1999, nearly 100% of our total funding came from the agency. As of December, it was 85%. In terms of bridge loans, we already have less than 50% of our funding from the SHF. We had planned to slash that to zero by the end of this year; now it has become imperative. If you include mortgages, we'd like to bring our SHF funding to 80% in two years. It appears that the SHF will withdraw from lending entirely within seven years and we have to plan accordingly.
ASR: The SHF is touting its guarantee, the IFC has a 14.4% stake in your company and other guarantors have no doubt knocked on your door. Will your future deals carry partial or total guarantees?
Campos: At the end of the day it's an issue of cost. So far you really can't talk about competition among guarantors. You have one transaction from SHF, one from MBIA, and one from FMO. But you can talk about diversity. We might go for a guarantee, but our last issue, which Deutsche structured with a mezzanine, went quite well. The mezzanine, which was rated double-B [on the national scale], yielded 450 basis points over Cetes [treasurys]. We've been gradually selling that piece to private banks, which appear to like the return.
ASR: Will you work with Deutsche bank in your next issuance?
Campos: We have two transactions for which we haven't awarded mandates yet. I think that Deutsche, IXE and Santander each have advantages. We're happy with the work they've all done for us in the past, but are still taking a look at new offers. Both Mexican and foreign banks that never spoke to us before are now seeking us out.
ASR: Deutsche is presently cobbling together a mega-trust for MBS issuance. Are you involved at all?
Campos: We're looking at it, but haven't ruled out going out on our own. The first MBS hasn't come out, but it will happen very soon (see ASR 3/3/03, p.22). Once it does, all the fence-sitters - and there are a lot of them - are going to dive right in.
ASR: The MBS market has yet to get started in Mexico. When it does finally emerge, how far behind will cross-border issuance be?
Campos: The problem in Mexico is that there simply isn't the savings to sustain growth in housing finance. The pension fund allocation for us is finite. You look at the Cetes [treasury] market and there are already U.S. investors buying in. Why would we go to the U.S. market? It's simple, that's where the money is. It's true that we don't have the kind of currency swap market you need for a cross-border MBS, but it's going to happen. Our job so far has been to make our processes as familiar as we can to U.S. investors and we've already done that. Now we just have to sell our story.
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