Russia, Turkey and neighboring emerging markets saw only scattered ABS issuance last year, and that largely depended on support from government-linked institutions, development banks or regular bank funding. Bond investors were mostly absent.
It is not clear whether they will come back in much force next year. In the case of Turkish deals backed by diversified payment rights (DPRs), originators will not accept the level of spreads that market investors have been requiring since the crisis broke out. Still, both sides are closer to a consensus than they were mid last year, said a source at a Turkish originator. This could mean that bond buyers will come back in 2011.
But if they do not, issuance is still anticipated, as other players are willing to pick up some of the slack. The European Bank of Reconstruction and Development (EBRD), for instance, recently launched a â‚¬400 million ($529 million) program to support Turkey's renewable energy sector by purchasing a â‚¬75 million tranche of a DPR deal from Garanti Bank. DPR paper enables the EBRD to lend long-term - 12 years in this case - while stipulating that the originator in question earmark the proceeds for renewable energy projects. More DPR issuance will be funded this way, sources said.
At any rate, Turkey is unlikely to be the only country in the region launching future flow deals next year.
"We'll see a broadening in the securitization arena with regards to future flows, either into new countries or into countries that have been passive with future flows over the past two to three years," said Stefan Bund, managing director at WestLB. He added that Russia and other CIS countries are good candidates as well as Latin American countries that have not recently been active platforms for future-flow issuers.
On the existing asset side, Bund sees less likelihood that 2011 will usher in much activity for mortgages in Emerging Europe, Russia or Turkey, apart from issuance that the Russian government is actively supporting. Receivables with shorter tenors have a better chance of attracting private-sector investors, he said.
To be sure, the Russian government will hold to its policy of stimulating RMBS next year, with state-owned the Agency for Home Mortgage Lending (AHML) announcing last September a RUR20 billion ($658 million) program for purchasing the senior tranches of RMBS. The scheme ends Dec. 31, 2012. To be eligible, a deal's underlying mortgages must meet the AHML's standards. Also, the tranche must either have an investment grade rating on the global scale by any of the three agencies or carry a guarantee from the AHML itself.
"You can expect that would increase activity in the market but how much this would actually translate to issuance is unclear," said Olga Gekht, a senior analyst at Moody's. The top tier banks, such as VTB and Gazprombank, can tap the market without AHML's help. Smaller banks, however, need this program to have any chance of floating an RMBS.