Reflecting the tone of markets worldwide, the second half of the year was a tough time for issuance from emerging markets in the CIS (former Soviet Union countries) and in Turkey. Among the deals tracked by ASR, the total ABS volumes in these areas - including a couple of domestic Russian transactions - amounted to about $5.9 billion, a steep decline from $9.6 billion in 2006 (see table, p. 28-29).
The evaporation in global liquidity starting last summer was the main culprit in this slide. Indeed, ASR found only four deals closing in the second half of the year, all from either Kazakhstan or Russia. Turkey, which was the previous year's engine of activity in the region, was losing steam even before market conditions turned hostile.
Overall, future flows securitization remained dominant. It was this sector that was especially crippled last year by the ugly sentiment toward some key monoline insurers, as guarantees had fed a future flow boom in Turkey in 2006 (ASR, 1/7/07). From $5.7 billion in 2006, public Turkish issuance of future flows, excluding political risk insurance deals, slipped to $2.3 billion in 2007, of those deals tracked by ASR. The withdrawal of monoline insurers sucked the oxygen right out of the marketplace.
The enthusiasm over Russian existing assets took longer to peter out, and warehousing activity continued in the second half of the year, though the furtive nature of warehousing makes it difficult to quantify. Existing asset deals in Russia tracked by ASR totaled $2.0 billion in 2007, and included a couple of domestic ruble transactions. That was more or less the same as the figure in 2006.
Ruble deals, on both the domestic and cross-border front, made an impact last year, with Gazprombank, the Agency for Housing Mortgage Lending (AHML), and Moscow Mortgage among the originators. While the consensus is that the Russian market remains too small to absorb more than a fraction of projected ABS and MBS issuance from the country, players are at least getting local investors comfortable with the idea of structured finance.
Kazakhstan, meanwhile, made a splash in 2007, with originators issuing at least $1.4 billion, a nearly threefold increase from 2006. The country debuted its first RMBS, from BTA Ipoteka, and attracted the likes of Ambac, FGIC, MBIA and the Asian Development Bank as guarantors on DPR transactions. And while warehousing activity in the CIS was a quiet affair for the second half of the year, at least one warehouse, a $200 million mortgage facility for BTA Ipoteka, went public.
Otherwise, the country's storyline in 2007 was a version of the boom-to-bust narrative followed by a number of ABS classes in the U.S. and Europe. Enthusiasm over Kazakh banks and their white-hot growth early in the year turned into concern as the liquidity crisis laid bare the sector's heavy reliance on foreign money. Disenchantment soon followed as rating agencies sounded the alarm with downgrades, which either dunked future flow deals or put them notice (ASR, 1/14/08).
Still, a noteworthy event was Privatbank's introduction of the Ukraine's first public RMBS in February.
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