CHAPTER05
ifrintelligence reports/Opportunities in: Russian Capital Markets
By contrast, in Russia there are about 50 international banks registered, but collectively they account for only 14.4% of the total assets of the banking sector, leaving most of the running to the Russian banks, which have limited access to capital. With no sign of a slowdown in consumer borrowing, and more and more banks launching plans to refinance their consumer loans portfolios via securitisation, the only question about the growth in 2007 is whether it will be fast or very fast. "The Russian banks are interested in securitisation because they are interested in the liquidity. In Russia we have an expanding retail market which needs funding and we have a relatively low savings rate," says Tim Nicholle, deputy head of structured finance for UniCredit Group. "The difference between what people on the street are saving and what they are borrowing has to come from somewhere. And that's where we come in; the international capital markets are providing the liquidity."
Figure 5.2: Securitisation in Russia, 2003–06 (US$m) US$m 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2003
2004*
2005
2006
*Excludes Gazprom’s US$1.25bn future flow deal Source: Moody’s
Bankers believe that the volumes of Russian securitisations will rise to US$4–6bn in 2007 with a typical deal size of US$300–500m. Until now, Russian banks have turned almost exclusively to European banks to buy their securitised assets, but as the deal sizes approach US$1bn, which is expected by about 2008, then Russian banks will be forced further afield to the US and Asian financial markets. In reality, the volume of deals is probably much higher than the official figures. The estimates for the 2007 volumes are extrapolations of publicly announced securitisations, but Moody's estimates there will be another US$2–3bn of securitisations that will remain as private transactions and so unreported. Securitisations are not a panacea to Russian banks' shortage of capital as they are still a very expensive product. Soyuz Bank's ground-breaking securitisation was small – a US$50m issue – but the bond received a considerably higher rating than the bank itself could command and so significantly reduced its borrowing costs. However, Soyuz CEO, Stuart Lawson, warns that the cost of putting the deal together was high, so there is no point doing a one-off securitisation; better to create a structure that can be used reused, he says.
Domestic securitisations Next on the agenda is to create a domestic securitisations market. One of the problems Russian banks face is that despite the growing pool of liquidity among Russian banks, the sector remains highly fragmented and most of the major industrial companies dwarf the banks. Domestic securitisation is a simple way for Russian banks to tap into this pool of liquidity. A bill that will create the legal framework for domestic securitisation is planned to go before the Duma in 2007, according to Russia's Federal Service for Financial Markets (FSFM). The law is needed, as setting up SPVs that are key to making securitisations work is impossible under current legislation due to shortcomings in the rules covering collateral. Banks transferring cash flows from the underlying assets of ABS would also be required to transfer the cash to investors in case of a default, unless otherwise stipulated by investors' contracts with the issuer, says the FSFM deputy director, Vladimir Gusakov.
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