The latest attempt to push through Russia’s domestic securitisation law may not spur issuance in the near-term but will at least give smaller institutions the hope of securitising a wider range of assets using local SPVs rather than incurring the expense of using foreign issuers.
Following a number of delays, a draft is back on the agenda in an attempt to push it through the Duma, the lower house of parliament. Its aim is to allow originators to securitise uniform assets, such as credit cards, auto, consumer and SME loans through locally established, tax-exempt SPVs.
At present, only RMBS can be issued through domestic SPVs, putting other assets at a disadvantage because any attempt to securitise them has to consider a foreign SPV.
Vladimir Savov, head of equity research at Otkritie Bank, said in a client note this week that the law would allow banks to raise long-term funding, likely at lower rates, adding that the medium-sized banks with significant portfolios of uniform assets would be the main beneficiaries.
Boosting their supply of assets would also sate pent-up demand, such as from local investors seeking higher yielding instruments as well as asset managers such as pension funds, including the state fund, he said.
Russian banks have a fast-growing stock of securitisable assets to choose from. Figures from Tinkoff Credit Systems put the Russian credit card market at Rbs671bn as of January 1 2013, up Rbs303.5bn or a massive 82.5% on the same time in 2012.
This outstripped the 2011 growth rate of 61.6%. Retail lending, meanwhile, was up about 40% last year - and credit cards and unsecured consumer loans are two of the asset classes that can benefit from the new law.
But the time elapsing between submitting a new law, having it ratified and actually seeing deals come to fruition is uncertain - which is where the theory of boosting the local securitisation market could come unstuck.
"It won’t change much overnight. It has been in the works for the last three or four years and this is just a new round of discussions", said Vladimir Dragunov, a partner in Baker & McKenzie’s Moscow office.
And Russia market participants need not look further than their own back yard for an example of delays between implementing a law and actually switching on the new issue printing press. The very same thing happened in the RMBS market.
"The MBS law was passed in 2003 but the first deals were not until 2006", Dragunov said.
"Even if the law is passed, the implementation of secondary legislation would be needed and it is likely to take at least another year before the law would become fully operational and we would see the first deals", he said.
The draft sits with an ad-hoc working group, which includes the Ministry of Finance, the securities commission and other market participants such as law firms.
The government entities are about to be combined into a single, overarching mega regulator to oversee the markets that will be part of the central bank.
This could slow progress even further, at a time when RMBS deals are flowing.
Troubles of emulating RMBS
Mortgage securitisation has gathered pace over the last couple of years, driven by the housing agency AHML and development bank VEB government-sponsored purchase programmes (much like the Australian Office of Financial Management's strategy).
Issuance in 2012 topped Rbs60bn (US$1.8bn), more than double the Rbs31bn achieved in 2011, according to S&P. But even though it has the advantage of being legally more advanced than ABS, it has not been easy to get deals done fully publicly.
"Investors in securitisation are only just now coming in with the domestic RMBS, the notes have mainly been placed with the AHML or VEB. Only this year are we seeing market deals", said Dragunov.
But that is not to say that originators have not tried to securitise non-mortgage assets in recent months, as Bank Poidem highlighted with its attempt at a foreign SPV structure.
It began a consumer loan securitisation in August 2012 called Life Consumer Finance, selling the loans to a Dutch SPV, which in turn was meant to place the bond with investors. However, the public trade did not materialise.
A combination of things could have conspired against the issuer, including not being a top tier originator, presenting an unfamiliar structure and attempting to issue while deficiencies in the ABS law were still being ironed out.
Other originators have successfully securitised non-mortgage assets, but this was before the crisis when global demand for ABS was much deeper. A handful of auto loan, diversified payment rights, credit card and consumer loan portfolios using foreign SPVs in domestic and foreign currencies were sold.
And Russian market participants have also built on the developments in the RMBS market, as Bank Obrazovanie registered the first securitisation of mortgage participation certificates (MPC) in December 2012.
The MPCs are a registered security certifying the owner’s share in mortgage collateral and other rights relating to the management of the pool and also to receive funds linked to the collateral.
As a result, the MPC is not actually an issuable security, and so does not need the SPV or various contracts that go with it. The other benefit is that they can still be included in portfolios for RMBS too.
In addition, the AHML is also looking to promote multi-seller deals for smaller banks that do not have the critical mass of assets to securitise efficiently on their own.
This article was originally published in International Financing Review, July 27 2013