Often associated with energy and corporate lending more than housing, Russia's Gazprombank nonetheless has a sizable mortgage book ($1.9 billion), and three RMBS deals under its belt for a total RUR15.8 billion ($666 million). The issuer is also a pioneer of sorts, having been the first Russian originator to place a deal under Russian RMBS legislation in December 2006. Gazprombank's last RMBS was in June, when it closed a mixed euro/ruble deal for a total RUR6.9 billion via Barclays Capital Markets and its own arranging unit. Not surprisingly, since then public borrowing has been limited to a one-year, and a three-year, unsecured loan closed last March for a total $450 million.
ASR caught up with Igor Rusanov, head of structured and syndicated finance at Gazprombank, to discuss the challenges presented by the harsher climate and other issues particular to this emerging player in RMBS, and, perhaps in the not too distant future, auto loans. The interview was conducted by Felipe Ossa.
ASR: While warehousing Russian mortgages certainly predates the liquidity crisis, there's been a rash of these facilities with Western banks since the 3Q07, as originators looked to ride out the troubled market. Has Gazprombank done any warehousing?
Rusanov: In December 2006, Gazprombank together with one international bank arranged for [our unit] GPB-Mortgage a RUR5 billion warehouse facility. [It] has an expected maturity in December 2008 with the associated market-related coupon step-ups. It's expected that the warehoused mortgages will be refinanced in the term market or repaid using funds raised from other sources.
ASR: When do you think Russian originators will come back to the market (or inversely, when will the market come back for Russian originators)?
Rusanov: We see the market in deep disequilibrium with high-quality assets largely underpriced from the point of view of fundamentals. These are the circumstances, which are not compatible with accepting the market pricing, given that Gazprombank has a widely diversified funding base, allowing it to survive the crisis safely.
We expect that as soon as the international market shows some solid signs of recovery, Russian issuers will test the market. It is quite likely that the domestic RMBS transactions will be the first to come from Russia since the local investor demand hasn't been impaired to the same extent as the offshore demand. We expect a limited number of deals from first-tier originators to be brought to market in 4Q08.
ASR: But the problem with the domestic market is its lack of depth, and there seems to be a lot of doubt that it can keep pace with the heady growth of assets. Still, there are measures on the table to stimulate domestic demand, including allowing the Russian State Pension Fund to invest in ABS and plans to include mortgage-backed securities on the Central Bank of Russia's Lombard List of repo-able securities. What's your take on this?
Rusanov: Both the State Pension Fund and the National Wealth Fund are heavily regulated institutions with stringent investment guidelines. Amending their investment policies is highly dependent on the priorities of the general government policy, which is yet to become public following [Medvedev's] election and the announcement of the new cabinet of ministers. Anyway, we expect this process to be gradual, with a greater probability of the State Pension Fund to be considered first in terms of allowing [investment] in ABS paper.
On the other hand, the Central Bank of Russia was quite active in fulfilling the prime minister's task to include domestic MBS in its Lombard List having made two MBS bonds of AHML eligible for Repo transactions. We expect further actions to be undertaken by the Central Bank to impose generic regulations including domestic MBS on its Lombard List. Undoubtedly, making domestic MBS eligible for Repo transactions with the Central Bank will enhance the liquidity of this paper, especially making it more attractive for banks to participate in primary placements as well as in secondary trading.
ASR: When Gazprombank issued the first RMBS under Russian law in December 2006, the rating was constrained by the uncertainties surrounding the application of certain concepts (SPV, true sale). Do you think people are more comfortable now with Russian legislation?
Rusanov: The rating of the domestic RMBS was subject to standard country ceilings imposed by the rating agencies. The choice of [Moody's Investor Service] Baa2' - the Russian Federation's local currency debt rating - was driven by marketing considerations. Despite the relative novelty of the securitization concept in the Russian legislation, both ratings agencies and investors are comfortable with these structures. We perceive domestic RMBS issuances as a natural substitute to cross-border deals and will follow this route if attractive financing opportunities are available - it could be in 4Q08.
ASR: In your RMBS last June - Gazprombank MBS Series 2007 - the currency split of your senior tranche was determined by the appetite from ruble and euro investors, an approach that apparently was novel across emerging markets. Would you try it again? Do you expect to see cross-border demand for ruble transactions once RMBS from Russia starts up again?
Rusanov: Both onshore and offshore accounts participated in the senior ruble tranche. We would consider exploring such opportunities again especially in the view of increased cost of hedging facilities for securitizations of RUB mortgages. We expect that RUB-denominated highly rated paper would be of interest to offshore accounts actively operating in the domestic market.
ASR: Are there other assets that Gazprombank originates that it would consider securitizing?
Rusanov: Gazprombank is very active in the retail market with a constantly growing portfolio of mortgages and auto loans. Auto loans are probably the next asset class that Gazprombank would consider securitizing. We believe that the prime quality of our portfolio together with short maturity would offer an interesting investment opportunity.
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