Recent volatility in emerging markets, inflamed by anxiety over rising interest rates, has rattled Turkey with particular ferocity. Since the beginning of May, the Turkish lira has lost nearly a fourth of its value against the dollar, benchmark bonds have gapped out by several hundred basis points, and the government has scrambled to shore up the currency by selling dollars, a move that has met some success.

In these choppy waters, Turkiye Vakiflar Bankasi (Vakifbank) launched an $815 million deal backed by diversified payment rights (DPRs) and instead of foundering, took on another $100 million in an unwrapped tranche. Led by WestLB and Standard Chartered, the transaction closed on June 29.

Pricing on the unwrapped piece came within the range of deals before the recent turmoil (see table), suggesting that the investors that buy into these transactions - and they were the "usual suspects" according to a source close to the deal - shrugged off the plunge in emerging market prices. "There's still not contamination," the source said.

As further evidence of the sector's insulation, peer bank Turkiye Is Bankasi also closed a DPR transaction last week, for $800 million. Led by Dresdner Kleinwort Wasserstein, ING Financial Markets and WestLB, the deal was dropped into a conduit. A $300 million piece was unwrapped, while FSA and MBIA each wrapped a $250 million tranche. Each arranger was understood to have led a different tranche, but that information was unavailable as of press time. Due to the conduit nature of the transaction, pricing details were undisclosed.

One reason for the DPR sector's resistance to the turbulence is that many of the same events that might hurt sovereign and corporate bonds, and push up inflation, could actually be a boon for flows. A depreciation of the lira, for instance, might boost exports, which are a powerful motor of DPR flows. In addition, financial hardship brought on by higher inflation or a drop in the lira could prompt Turkish workers overseas to send remittances home, another engine of the asset class. Still, a sharp slowdown in economic activity could offset the more salutary effects of a falling currency.

In 2005, Vakifbank processed $5.8 billion in non-Turkish DPR flows, which stem from international financial operations initiated offshore, such as exports and worker remittances. In June 2005, the Turkish bank issued an unwrapped $750 million underwritten by Standard Chartered and WestLB.

Isbank's last transaction in the structured finance world was a $350 million backed by credit card receivables and led by Citigroup.

More on Russia RMBS

Elsewhere in EEMEA, price guidance is out for Vneshtorgbank's (VTB) RMBS, an $88.3 million, 3-tranche deal that promises to be the first of its kind from Russia. The parameters for the $74.2 million in A notes are between 100 basis points and 120 basis points over one-month U.S. dollar Libor. With a 28-year legal final, that tranche has ratings of BBB+' and A1' from Fitch Ratings and Moody's Investors Service, respectively.

Pricing has been set for either this week or last Friday. The deal is only Reg-S registered, but some U.S. accounts have expressed interest in buying through offshore accounts, according to a source close to the transaction. During the marketing phase, more queries have come from investors in the European ABS and MBS worlds than in the emerging-market crowd, the source said. A hearty appetite from the former kind of investors could help the deal circumvent the volatility that has recently shook up emerging market assets, as structured finance buyers are more prone to view European RMBS, rather than EM bonds, as the best comparables.

Still, investors of any stripe are likely to be aware that eurobonds issued by VTB have not escaped the recent turbulence. The spread on VTB's benchmark 2011s has gapped out by about 50 basis points since the start of May, when concern of rising interest rates in major financial markets started to eat into stocks, bonds, and currencies from major emerging markets. In the same time frame, the midmarket price of VTB Capital's notes due 2015 - which have VTB as the ultimate obligor - have slipped from a shade over par to 97.67, at last quote, according to Bloomberg.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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