Moody's Investors Service predicts that structured finance activity in the new markets of Europe, the Middle East and Africa (EMEA) will be hampered for some time.
"A full recovery to pre-crisis issuance volumes in these regions will depend on the timing and robustness of a global economic recovery," the agency said in a report. Still, Moody's expects a number of transactions to surface this year as Central Banks accept structured notes as collateral for repos and new pockets of opportunity take shape, such as covered bonds out of Turkey and Russia.
The report encompasses the Commonwealth of Independent States (CIS), Central and Eastern Europe, Turkey, North Africa and the Middle East. All told, these markets witnessed $5.0 billion of structured finance issuance in 2008, a 35% drop from the $7.7 billion posted in 2007.
Turkey, which for a stretch generated massive volumes of DPR deals, had an uneventful 2008. There were only two DPR transactions, and hopes for the long-anticipated birth of existing assets were dashed by the crisis.
"The strained economic conditions and credit crisis contributed to the lack of issuance, but a reason unique to Turkey's underperformance was the downgrade of monoline insurers," Moody's said. Indeed, the guarantors were the engine of issuance in earlier years.
The two transactions that did manage to close both went to the European Investment Bank, which stepped in as market pricing was too dear for originators Akbank and Turkiye Garanti Bankasi. The former sold a deal for $393.5, the latter a transaction for E200 million ($262 million).
The agency expects to see a couple of DPR transactions from Turkey in 2009 and said the potential exists for covered bonds and even auto loan ABS. Performance of existing transactions remains strong, despite a slowdown in the kinds of economic activities that generate DPRs, such as tourist traffic. The sector was hit with a slew of downgrades in 2008 - from all the agencies - but this was a product of monolines being cut and not of diminishing coverage levels.
On the CIS front, Moody's saw some likelihood in some activity from Russia this year, with domestic RMBS transactions holding the most potential thanks to a repo facility at the Bank of Russia. In addition, the agency pointed out that a draft covered bond law is in the works. "The law is expected to pass sometime around mid-year and will likely lead to the first Russian covered bonds being issued in 2009," Moody's said. The agency expects between five and ten covered bond programs to emerge in Russia over the medium term.
Domestic investors in Russia also reportedly played a larger part in local structured deals. The crisis could, in effect, be accelerating the shift from cross-border to domestic issuance that has happened in other, more mature emerging markets such as Mexico and Brazil.
Not everything is rosy, however. Moody's noted that it had downgraded several dollar-denominated Russian RMBS and ABS deals following the rapid drop in the ruble's value. There is even a nascent risk of the government re-denominating dollar loans into rubles (ASR, 1/2/09).
In addition, housing prices in the country started to weaken in the last few months of 2008 after years of heady growth. In Moscow, they slid 2.6% during the fourth quarter, while some regions saw drops of up to 15%, according to the Builders Association of Russia. More retracing is expected in the first half of 2009.
Nevertheless, Russia is certainly faring better than Kazakhstan, which did not produce a single deal last year after a handful of multi-tranche transactions in 2007. The agency said the issues facing originators in the energy-exporting country summed up to three: "lack of investor demand, domestic economic challenges and deteriorating loan performance."
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