Watching and waiting
Central and Eastern Europe has the potential to become a significant player in the securitisation field, but issuance figures suggest the region has thus far failed to live up to expectations. Anna Carlisle investigates the factors hindering the progress.
A growing pipeline of deals from the CEE region suggests that 2008 should, in theory, be a good year for securitisation issuance. It also enjoys the prospect of improving legal frameworks for securitisation in several countries such as Romania and Poland, a rapid increase in mortgage lending, and the origination of good quality assets.
But 2008's lack of issuance would suggest that this market has not taken off to the extent that many hoped it would, and given the global credit crunch and the effective closure of the securitisation market in Western Europe, perhaps it is not surprising.
Jaime Sanz, senior director of European structured finance at Fitch said it seems logical that the big breakthrough in securitisation will not come this year. “The potential for securitisation issuance from this region is limited in the short term," he said. "All the ingredients for a healthy securitisation market are in place, but it will not happen with markets in their current state.”
Other market participants are more optimistic however, and confirm preparatory work is still being carried out in the region. They remain hopeful that a number of new deals from Central and Eastern European jurisdictions should come to the market before the year is out.
“There is a certain amount of activity going on in Poland, Bulgaria and Romania, and we might expect to see deals from these regions closing in Q2 or Q3 of this year," said Georg Feldscher head of strategic portfolio management at Raiffeisen Bank. "Assets that are being securitised include consumer loans, such as car loans, and also mortgages - which might result in the first pure RMBS deal from any of the EU-member countries in CEE.”
Moody's also confirmed that it is in initial or advanced talks with issuers, and analytical work is in progress.
As of writing, there has been just one deal issued in 2008: an unrated Polish auto loan deal from Raiffeisen Bank that closed in February. The Z1bn (US$400m) deal, Roof Poland 2008-1, was originated by Raiffeisen Leasing Polska, the Polish leasing subsidiary of Raiffeisen International, and was privately placed. It was backed by 20,358 contracts to Polish SMEs with a weighted average life of 1.8 years.
The deal's capital structure comprised senior, mezzanine and junior notes, and although it was not publicly rated, the rating assumption for the senior tranche was Double A equivalent. Coupons were not disclosed. The EIB and EIF were key investors in the deal.
Tycjan Bielecki, an analyst at Moody's believes that the fact that deals are closing is a promising sign for the markets, showing that there should be investor demand for deals.
But negative factors appear to outweigh the positives for the remainder of 2008. The broader economic situation is not deemed the best environment for new issuers in untested jurisdictions, especially as the investor base is increasingly risk-averse.
Meanwhile, the rating agencies are becoming increasingly hesitant to rate deals from the region, noted Raiffeisen Bank's Feldscher. “They are more conservative and more hesitant to rate deals than they were before the crisis started – and before the crisis, they were already very prudent with respect to new markets like the CEE and the CIS," he said.
However, as demonstrated by Roof Poland 2008-1, some seasoned emerging market investors do not require ratings from the agencies as they have their own in-house rating procedures.
Moody's conceded the rating process does take slightly longer with new markets as more due diligence is required, but stressed that their approach to rating deals has not changed. “We have not changed our rating methodologies for new markets since the credit crunch started, although some assumptions may have changed,” said Bielecki.
But what may ultimately discourage securitised issuance is the fact that most countries in Central and Eastern Europe do not have an intrinsic need for it, at least not for funding purposes. The banking sector in this region is generally liquid, and according to Moody's this funding profile is unlikely to change during the next two to three years. It is unlikely that issuers will bring deals unless it makes economic sense.
“We are doing what is attractive for us," noted Feldscher. "We are not forced to issue securitisation transactions, so there will be only a deal if it is financially viable for the issuer, the originator and the investor.”