At press time, Russia's second-largest bank, VTB Group, was in the midst of an IPO that had apparently whipped throngs of locals into a financial mania. Ahead of last week's deadline for the sale - extended by popular demand - Russian retail investors had packed the bank's branches, lugging wads of rubles in heavy bags, according to news reports. The plan was to float about 22.5% of the bank's shares, which are currently controlled by the government.
VTB's move into securitization in July of last year sparked far less fanfare, but for people in the industry it was a pivotal event: the first mortgage-backed security from Russia. Led by Barclays Capital and HSBC, the three-tranche deal was sized at $88.3 million. The $72.2 million A tranche was rated A1' by Moody's Investors Service and BBB+' by Fitch Rating, which subsequently raised it to A-'. Helping enhance the A tranche was a liquidity guarantee covering 18 months, provided by the International Finance Corp.
At Information Management Network's recent Spring ABS 2007 conference, ASR caught up with VTB's deputy head of debt and trade finance, Victor Kisselev, for a brief chat on the bank's plans in structured finance, and other issues pertinent to the industry.
Does VTB have plans to securitize mortgages in 2008?
Another RMBS is scheduled for later this year, backed by dollar-denominated loans. We're hoping to issue at least one a year.
What kind of volume can we expect? Your initial transaction was under $100 million, but since then the market has witnessed two RMBS, from Gazprombank and DeltaCredit, that topped $200 million. Particularly if you want to stay in the cross-border game, surely size matters.
[We'll do] somewhere between $400 million and $500 million. Our average monthly origination is $100 million.
Will it differ in other ways from your first deal?
It will be much the same structure, but [with] possibly different arrangers.
Presently, Russian mortgage agency Agency for Housing Mortgage Lending (AHML), a quasi Fannie Mae, is prepping a ruble deal backed by ruble-denominated loans. The transaction is governed almost entirely by domestic legislation, in contrast to your outstanding deal and those of your peers, where most aspects are covered by foreign law. Will you start to go the domestic route?
Not this year, nor next year. [Foreign investors] aren't the [main] investor base for those deals. AHML is selling ruble denominated paper with a fixed coupon and quarterly payment; it's not regular international [paper].
What about other asset classes? Has VTB ever looked into diversified payment rights (DPRs), a future flows asset class that has been tapped by Alfa Bank and MDM, and provides abundant volumes from Turkish originators?
We can tap the capital market on an unsecured basis pretty easily, so what's the point of pledging those receivables? There are other benefits to existing asset securitization like off balance sheet treatment and transfer of risks.
Then are existing assets other than mortgages on the agenda?
The next asset class we'll be working on is auto loans.
With origination in Russia's financial sector rising at a consistently brisk pace, and securitization becoming an increasingly viable option for banks, do you see any bottlenecks or potential pitfalls up ahead?
One obstacle going forward might be the quality of the assets. [For example] in the battle for retail, more banks are entering this area, so the quality might deteriorate.
In the arena of structured finance will VTB only wear the originator hat or is it open to playing other roles?
We merged with Moscow Narodny and they [arranged] the first securitization [from Russia]. As an arranger, VTB has been mandated for a mortgage deal from the Ukraine.
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