Oil and gas aren't the only gushers in Russia these days. Structured finance is bubbling forth like a hot new energy source, with HVB forecasting that the country will crank out $2.5 billion in ABS and MBS this year, a booming business that was nothing more than a fanciful idea as recently as three years ago.
Behind part of the recent growth is consumer finance ABS, which, in turn, has found a powerful champion in Russian Standard Bank, the biggest privately owned consumer lending bank in the country.
Having closed a 300 million ($383 million) consumer loan transaction last April, RSB is now preparing to make a splash in the auto loan and credit card sectors by the end of the year, according to a source close to the deal. The bank has mandated a $400 million equivalent auto loan deal to joint bookrunners HVB and JPMorgan Securities and an up-to $400 million equivalent credit card transaction to HVB and ABN Amro. Timed for September, the auto loan deal will be only Reg S-registered, a likely outcome for the credit card deal as well.
"We plan to be a regular issuers of ABS transactions next year," said Levan Zolotarev, senior vice president of RSB. He added that the bank was looking to emulate its developed country peers that meet anywhere between 30% and 70% of their funding needs via ABS and MBS.
Hand in hand with unsecured financing, the securitization deals are bankrolling organic expansion that's been piggybacking on Russia's stellar energy-driven growth. The bank's assets totaled $3.9 billion-equivalent at the end of 2005, more than double 2004's $1.5 billion-equivalent and more than seven times 2003's $535 million-equivalent. And, with the brisk macroeconomic wind behind RSB's sails, the boom in consumer assets is likely to stay the course, at least for the medium term. "The growth is going quite nicely in terms of [all the asset classes]" Zolotarev said.
Since 2000, RSB has issued 17.7 million loans, with four million in the first half of 2006 alone. Point-of-sale consumer loans - the one asset the bank has already collateralized - make up 35% of the total portfolio; credit cards, 60%; and car loans, 5%.
As a percentage of GDP, consumer lending in Russia is negligible, another factor pointing to continued heady expansion for RSB and the industry overall. In 2004, consumer borrowing in Russia was a mere 3% of GDP, another world from the 71% and 49% ratios posted in the U.K. and Eurozone, respectively, according to an RSB presentation to investors. The Russian ratio skipped up to 6% in 2006, indicating that the culture of consumer credit is approaching the reach it enjoys in Eastern European countries, which have ratios in the teens. Some 89% of the 128 million people living in Russia have never taken out a bank loan.
While RSB plans to lean more and more on cross-border structured finance investors, the bank is keeping an eye on the domestic marketplace. To suit the needs of foreign buyers, RSB's only public ABS outstanding was in euros, a denomination that will likely be shared by the auto loan and credit card deals. But the bank's collateral is in rubles. "We are more interested in [issuing bonds in] rubles, but the local market is not yet developed in terms of the investor base," Zolotarev said. There is another road - the bank could peddle a ruble bond to foreign investors eager for the unhedged currency risk, a strategy that appeared to work for a group of leasing companies that originated a RUR13.8 billion ($515 million) deal sold in the cross-border market in March. At least for this year, however, that approach isn't on the table, Zolotarev added.
Moody's Investors Service and Standard & Poor's give RSB unsecured foreign currency ratings of Ba2' and B+', respectively. Both agencies have pointed up the bank's advantageous stature in a business that is still in its infancy in Russia.
Among the bank's other funding sources, RSB has established a European medium note program and has lending relationships with a host of international banks in addition to multilateral institutions like the European Bank of Reconstruction and Development and the International Finance Corp.
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