Nicaragua's mortgage bank, Primer Banco Immobiliario (Pribanco) is currently preparing its first preparing its first mortgage securitization deal.
Working in conjunction with a local bank, Invercasa, Pribanco is structuring a trust and expects to launch its first $10 million MBS offering within the next two months.
The transaction is no doubt small, but it exemplifies the course along which market sources are expecting capital markets activity in Nicaragua to proceed. The country recently finalized the standardization process of its Bonos de Pago por Indemnizacion (BPIs), or land bonds, and sources predicted that this move might set the pace for securitization.
And although the Pribanco transaction is small, it will still be sold to international investors. "We plan to have part of it wrapped and tap the foreign markets," said Mario Gonzalez Holman, president of Pribanco.
The current deal will be backed by mortgages issued to high-income Nicaraguan citizens, Holman said. However, an expansion of the country's securitization market could also bring offerings backed by mortgage payments on housing projects for the low-income segment of the population.
There is a movement to deepen the securitization market. Pribanco is currently working closely with Nicaragua's central bank on a series of tax cut plans that will promote long-term lending and help develop a secondary mortgage market, Holman said. But "the road ahead of us is long and difficult," he said, because Nicaragua's housing finance sector is still plagued with many problems that are the legacy of 12 years of Sandinista rule and civil war.
The ensuing depletion of the banking system led to a halt in construction of new properties. Currently, only 1% of credit in the country is devoted to the housing sector. In addition, a powerful earthquake in 1977 destroyed large parts of Nicaragua's capital city, Managua, and many areas of the city were never rebuilt.
As a result of all this, outstanding mortgages totaled just $30 million at the end of 1998 and the housing deficit, estimated at around 450,000 in a country of only 4.4 million people, is considered one of the worst in the region.
"A lot of work still needs to be done," Holman said. "But we are optimistic."
The Pribanco transaction is not likely to be followed by other securitizations in the near term. The Nicaraguan economy is small and it lacks the type of strong, export-oriented companies that could be potential ABS issuers.
However, some sources said that deals backed by remittances from Nicaraguans working abroad could be used to structure future transactions. The country receives approximately $500 million in check remittances from Nicaraguan workers in the U.S. "The way I see it, [worker remittance-backed deals] are the only other viable source of securitization out of Nicaragua," said a U.S. banker.