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July 21, 2006, Moscow, Russia
– IFC provided two types of credit enhancement to support Russia’s first securitization of residential mortgage loans, which was successfully completed today by Vneshtorgbank, Russia’s second largest bank. Placed by co-lead managers Barclays Capital and HSBC, the transaction involved the cross-border sale of U.S. dollar-denominated fixed rate residential mortgage loans to a Luxembourg-based SPV that funded its purchase through the issuance of three classes of notes.
IFC provided credit enhancement to the senior Class A note holders through its purchase of the subordinated Class B notes and through its provision of a guarantee of an offshore liquidity facility (GOLF). The GOLF facility insures that liquidity will be available to cover 18 months of interest (on the Class A and B notes) and SPV expenses in the event the Russian government imposed currency transfer and/or convertibility restrictions.
IFC’s GOLF credit enhancement allowed the senior Class A securities to receive a credit rating (A1/BBB+ from Moody’s/Fitch) one notch higher than that of Vneshtorgbank and the agencies’ respective country ceiling.
As the first mortgage-backed securitization from the Russian Federation, the transaction will offer a potentially useful guide for other originators of mortgage assets in Russia and, in addition, provide additional impetus to improve the legal framework for domestic asset-backed securitizations in Russia.
Andrey Suchkov, Senior Vice President at VTB said: "The main purpose of issuing mortgage backed securities is to raise long term financing from the capital markets for providing mortgages to Russian consumers. Development of the market for mortgage backed securities will make mortgages more accessible and affordable to Russian home-buyers. Therefore a successful mortgage securitization of Vneshtorgbank's mortgage pool is an important step in the direction of further development of the Russian housing market".
Edward Nassim, IFC’s regional vice president for Africa, Europe and the Middle East, said, “Housing finance is the core element of IFC's financial markets strategy in Central and Eastern Europe, especially in Russia, where housing is one of the national priorities. Therefore, we are very pleased to support this first Russian mortgage backed securities issue as an important step in development of the secondary mortgage market in this country.”
Jyrki Koskelo, IFC’s director of Global Financial Markets Department added, “Russian housing finance market is still in a nascent stage with mortgage debt outstanding representing less than 1 percent of GDP. Therefore, there is a significant need for development of a viable and market-based funding mechanism by Russian mortgage originators to support the further growth of housing finance and facilitate improvement of living standards. The first successful placement of residential mortgage backed securities by a Russian bank is expected to have a high development impact and will benefit Russian home-buyers by improving access to housing finance.”
Additional Information
About IFC
The International Finance Corporation is the private sector arm of the World Bank Group and is headquartered in Washington, D.C. IFC coordinates its activities with the other institutions of the World Bank Group but is legally and financially independent. Its 178 member countries provide its share capital and collectively determine its policies.
The mission of IFC is to promote sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. For more information, visit
www.ifc.org
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IFC manages environmental and social risks associated with the projects it finances through standards that its clients companies are required to apply. In collaboration with client companies, IFC looks at business opportunities arising from the protection of the environment and from social development. IFC also explores and develops new financial products that create new business opportunities linked with the environment and social development.
IFC in Russia
Russia became a member and a shareholder of IFC in 1993. Since then IFC has invested $2.9 billion in the country, including $527 million in syndicated loans, in over 110 projects across a variety of sectors. In FY05 (July 2004–June 2005) IFC’s investments reached $832 million. IFC’s investment portfolio in Russia currently stands at $1.8 billion, making it the largest country exposure for IFC globally. IFC has invested in key sectors including banking, leasing, housing finance, infrastructure, mining, agribusiness, pulp and paper, construction materials, oil and gas, telecommunications, information technologies, retail, and health care. For more information, visit
www.ifc.org/europe
.
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