Standard & Poor's expects securitization issuance in EEMEA - Eastern Europe, Middle East and Africa - to keep growing this year, albeit at a slower pace than in 2005 or 2006. In January, S&P predicted that flows in 2007 would climb past the 9.8 billion ($13.4 billion) in public deals posted in 2006. Updating its views in a July 31 report, the agency said that given the 5.1 billion issued in the first half of this year, the 2006 figure should indeed be trumped.
Existing asset securitization in EEMEA eclipsed future flow volumes for the first time in 2006, with a yawning gap of nearly 2 billion between the two asset classes. While the agency had expected that gap to hold, if not widen, it actually shrank in both absolute and relative terms in the first half of this year. "This highlights that in some jurisdictions future flows remain the most viable financing option," S&P said. However, the margin between the two should stretch out again in the second half as the pipeline for existing assets is bulkier than the one for future flows.
On the Turkish front, the agency said that in the wake of mortgage legislation, the country might produce ABS and MBS deals this year, although the most attractive road to funding might ultimately be covered bonds.
Presently, the future flows class - namely, diversified payment rights (DPRs) - is the only show in town. "Most Turkish banks are content for now to continue leveraging their future flow programs for funding before they move to securitize existing assets," S&P said. "The market will need a pioneer bank to undertake the first existing-asset issuance, and many banks will be happy to wait for this to occur."
Russian banks, in contrast, have been tapping their existing assets for a good two years already, and volumes are only heading north, S&P said. So far this year, auto loans and RMBS have been the dominant asset classes. The agency expects additional domestic transactions along the lines of the onshore ruble-denominated deals issued by Gazprombank last year and the Agency for Housing Mortgage Lending (AHML) in May, although the cross-border side will carry the weight of volume. The agency predicted that Russia would crank out 15 to 20 deals in 2007.
Moody's: Russia 07 Issues Could Hit $5 Billion
Meanwhile, Moody's Investors Service, in its most recent periodical on CIS structured finance, said that a heavy second-half pipeline bolstered the view that the Russian market could hit $5 billion in total issuance this year. The need for funding is stoked chiefly by fast-rising portfolios of existing assets. The hypergrowth in mortgage pools is particularly stunning. At the end of the first quarter, outstanding mortgage loans in Russia stood at more than $13 billion, a massive leap from the $2.8 billion volume a year earlier. What is more, it shows no sign of abating.
Among factors that could continue to broaden the reach of mortgages among Russians are plans by lenders to ratchet down rates. "It was recently reported that a number of mortgage lenders including AHML will be reducing interest rates on mortgages by as much as 2% annually," Moody's said.
The agency also pointed out that warehousing is an increasingly popular first step for second-tier Russian banks seeking to make their way to the securitization markets but unable to muster the volumes required to dive right in. These originators have been selling portfolios to warehousing facilities, which build up the pool until there is sufficient critical mass to justify tapping the capital markets. While ABCP conduits are one way this is being done (ASR, 7/30/07), it appears that most lenders are using on-balance-sheet loans to do the trick for their clients.
Regardless of the precise method, the warehousing trend augurs well for future issuance. "As an every increasing number of CIS banks are using this strategy, several of the banks' loan portfolios that were securitized earlier this year have instead been rerouted to the warehousing phases and will most likely come to market in late 2007 and early 2008," Moody's said.
Finally, the agency sees credit card securitizations surfacing from Russia and expects the structures to reflect the fact that underlying assets aren't cut from the same cloth as Western European collateral. "In Russia, borrowers often buy expensive, one-time items with their credit cards and then pay down their debt over a short or medium period of time, thereby creating a shorter amortization profile than for typical Western European credit cards, where there tends to be a steady balance," the agency said. Thus, credit card deals from the country might end up looking more like Russian deals collateralizing point-of-sale loans.
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