Page 108 - IFR Opportunities in Russian capital markets

CHAPTERSECURITISATIONS 05 Background
Russian banks have jumped feet first into the securitisation business, where loans to consumers are repackaged into reduced-risk bonds and sold off to international investors.
Securitisations are a consequence of the ballooning volumes of retail lending in 2004 and the need to find cheap ways of refinancing this lending.
The traditional problem for organising asset-backed securities (ABS) in Russia has been the lack of a clear distinction between loans provided by a bank and those provided by a non-financial institution, or SPV. Previously it has been impossible to transfer loans from one type of entity to the other. Nothing has changed materially to the rules, but the judicial system has decided to accept the principle of asset transfers between banks and SPVs, although the legal concepts under- pinning the issue are still fluffy and untested.
The volume of securitisations has grown exponentially over the last 18 months. A handful of deals in 2005 got the ball rolling, when a few pioneering banks raised US$300–400m by securitising their hard currency credit card receipts and retail credit portfolios, selling the bonds on to inter- national investors before reinvesting the money back into the market in the form of more loans.
Russia is unusual in that the types of securitisations have expanded very rapidly, whereas in other emerging markets banks have stuck to the simple forms of securitisations such as receipts of foreign credit cards.
The first ruble-denominated credit portfolios were securitised in 2006 and by December of that year a total of 11 transactions had been completed, generating US$2.5bn worth of deals. Russian banks need the money, but foreign investors, mainly Europeans, want exposure to the booming retail sector almost as much.
The early deals were necessarily offshore, as Russian law simply did not exist to create the Special Purpose Vehicle (SPV) that is the core of a securitisation deal.
Market beginnings
The second-tier Soyuz Bank, which belongs to aluminium tycoon Oleg Deripsaka, set the standard with a securitisation of receipts from car loans at the end of 2005, issuing a bond that was rated significantly better than the bank. The bank floated a US$49.8m Eurobond in London backed by receipts from a 4,000 car loan portfolio worth between US$60–80m.
The car loans were transferred to Russian Auto Loan Finance B.V., a Netherlands-registered SPV, which then issued three tranches of bonds. JP Morgan will act as cash manager and Russian Standard Bank will act as the back-up servicer.
The bond’s legal packaging impressed the ratings agencies so much that Moody’s granted it an extremely high (by Russian standards) rating of Baa3 – an investment grade rating – which is sig- nificantly higher than the bank’s own sub-investment grade rating; Moody’s does not rate Soyuz at all, but the bank was given a CCC+ rating from Standard & Poor's in August.
Investors bought the senior tranche that carries the least risk, which made up 88% of the total, paying 1.75% over Libor, a cost of capital that is significantly cheaper than the bank could raise for itself.
The deal is doubly impressive as Soyuz bank is a relative newcomer on the scene, having emerged from a series of restructurings to bank entities associated with insurance giant Ingosstrakh after 1998. The bank is now part of the Basic Element aluminium group, headed by oligarch Oleg Deripaska, and only got into the car loan business in 2004.
Soyuz’s ABS is not Russia’s first securitisation. Rosbank securitised external credit card payments from foreigners using their cards in Russia and Gazprom securitised gas export receipts last year, but both these bonds were awarded lower ratings of, Ba3 and BBB-, by Moody’s.
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