With its role in the recent lease backed transaction from Turkey's Garanti Leasing - the first onshore securitization of Turkish assets - the International Finance Corp.'s (IFC) structured finance group confirmed its arrival as a significant player in emerging market securitization.
The transaction, which was the securitization of the $43 million "B" portion of a loan from the IFC to the company, was jointly structured by the IFC with Rabobank and Bear Stearns and underwritten by Rabobank.
With the IFC as lender of record the deal relied on the IFC's preferred creditor status to mitigate currency transfer and convertibility risk, thanks to the assumption that even in the event of a systemic crisis or the imposition of exchange controls hard currency would be made available to repay debts to the multilateral agencies, including the IFC.
Consequently, deals structured in this way can garner ratings above the foreign currency sovereign ceiling allowing companies in non-investment grade countries to access funding at much tighter pricing levels. In the case of the Garanti Leasing transaction, the deal was rated at Baa2 by Moody's Investors Service and BBB by Duff & Phelps Credit Rating Co.
The deal was the structured finance group's first securitization, but it is likely to be the first in a series, said Arun Sharma, the group head. "There is no doubt that the securitization can be done in other emerging markets," he said, adding that the group was examining deals in all the world's developing regions.
Sharma was keen, however, to stress that the IFC offers much more than just the preferred creditor status. "It is an important but relatively small part of what we bring. We are looking at existing asset deals, future flow deals, even deals in local currency where the preferred creditor status is not being used. IFC adds value in other ways such as structuring expertise, investment in junior or senior tranches and swap intermediation," he said.
Also, by acting as lead investor in a transaction, the group encourages education, and gives local investors the comfort that an international investor has given the deal the once-over. "They know that we have analyzed it and are putting our financing behind it."
The Washington D.C.-based group is now four people strong, with Sharma being joined by Hans Paris (ex-Moody's in London), Natalie Louat (ex-Credit Lyonnais in Paris) and Jerry Wu (ex-KPMG in Washington D.C.).
The group's role is not restricted to transactions, though. The IFC has advised country's as diverse as India, South Africa and Morocco on securitization regulations. It is also scheduled to give a seminar on securitization to government and banking officials in China later this year. "China is a very important market. [Securitization] will be very challenging, but if you get the right people enthused then things start to happen," Sharma said.
He added that the IFC is keen on securitization because it offers benefits beyond simply raising money for companies in the emerging markets. It provides longer-term financing than is normally available, diversifies risk, and puts pressure on local financial institutions to upgrade their information systems, their reporting and asset monitoring to the standards of the developed markets. "It is very developmental," he said.
