As the European ABS markets reach a point of critical mass, looking at other regions could bring the much-needed alleviation from oversupply that some investors need to create asset diversification and arbitrage opportunities. The new EU member states might provide some relief in 2005, say market sources.
"We're expecting at least two transactions this year from the Russian and Ukraine region of the Gazprom and Rosbank variety - these are well sought after in continental Europe and we expect this trend to continue this year," said one market analyst. Last week, Rosbank topped off its initial $225 million securitization of credit card receivables (see ASR 11/1/2004) with a $75 million offering. The new transaction will consolidate with the series 2004 offering that attracted investors from across Europe and Asia.
The Czech Republic has also completed a revolving credit card deal from issuer Home Credit Finance where the structure allows for flexible issuance from the SPV. Neighboring Latvia last year brought to market a $63.6 million RMBS deal with a political risk insurance structure. The PRI protects investors from payment blockage caused by government-imposed capital controls, such as restrictions on overseas currency transfers.
"I would expect that this deal could be replicated by other regions, but at the moment we haven't seen a tremendous amount of interest," said one source close to the deal. "There was a lot of press interest when the deal closed, but it hasn't immediately translated into interest from new clients."
But with the groundwork laid, some market participants are hopeful that other issuers will follow. The Latvian deal was a time-consuming process, as these types of deals from these regions take some time to incubate before coming to fruition.
All of the accession countries lack the legal framework for securitization deals to be done. But bills are in place to create a framework for securitization and remove the tax that makes structuring these types of deals more costly. "At the time there is no specific law in any of these countries," said one market source. "Poland has made strides to establish specific securitization legislation but this effort has been slow to materialize."
Elections scheduled for later this year in Poland could act as a further deterrent to passing a securitization act. "But we've already seen deals structured under Polish law and, at the moment, the most important change was allowing for securitization of banking receivables - it addressed the issue of confidentiality," said the source. Under the new rules passed last year, banks are able to consider every kind of asset for securitization.
The amendment abolishes the bank secrecy protection for the realization of securitization and execution of connected agreements. However, the amendment does not tackle the tax issue. "The law on investment funds is a way of conducting the securitization of loans but it is a heavily over-regulated route," said one market source. "There are limitations on what types of securities can be issued and it's not for every type of issuer."
Although Poland has seen some deals come to market, none have been structured under the new law, but market sources report that two of the largest banks in Poland are looking at establishing a deal under this law that could come to market sometime in the third or fourth quarter this year.
The motivation for establishing a market has so far come on behalf of international clients interested in buying Polish assets. There is little business interest from domestic clients, said one source familiar with the market, who added that the promulgation of a new securitization framework has been championed largely by law firms.
On the local front, though, one deal that has been long in the works is the securitization by Polish power grid operator, Polskie Sieci Elektronenergetyczne, which is trying to structure a $1.5 billion deal backed by a new tax paid by electricity consumers. The deal is expected to come to market by the end of the year. "Here is one clear area where the concept of securitization is being understood," said one source. "You have everybody working to achieve a structure because there is a real need for this type of deal."
The EU accession states could provide a fertile backdrop for continental European banks that already have an established presence in these countries, according to Moody's Investors Service. Germany, in particular, is one country that has a notable bank presence in Poland and the Czech Republic.
"We could see some ABCP funding and possibly some term ABS transactions as well," said one Moody's analyst. "We could see some leasing deals or credit card deals, and I suspect that on the RMBS side we might see something but these can be time consuming. On the ABCP side we might see some auto leases and equipment leases being done."
On the consumer finance side, the Moody's analyst added that the market could possibly see an auto lease deal sometime this year and added that repeat issuer Volkswagen is one of the German entities to have established a strong operation in the Czech Republic and Poland.
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