Washington, D.C., June 29, 2006
—The International Finance Corporation, the private sector arm of the World Bank Group, has arranged BRL50 million (approximately $22 million equivalent) of five-year financing for Rio Bravo Securitizadora S.A. The transaction, which is pending final approval from the securities regulator in Brazil, will be IFC’s first debt funding targeted at the country’s housing finance sector.
Under the deal, IFC would provide a credit-linked guarantee to Banco ABN AMRO Real S.A., which would make local currency funding available to support Rio Bravo Securitizadora’s operations. The funding provided by Banco Real would be directly invested in quotas of a fundo de investimento em direitos creditórios (FIDC), which is the Brazilian equivalent of a bankruptcy-remote funding vehicle, or trust, containing residential real estate receivables that are originated by Rio Bravo Securitizadora.
In turn, Rio Bravo Securitizadora would securitize the receivables in the form of certificados de recebíveis imobiliários (CRIs), which are the Brazilian equivalent of mortgage-backed securities, to be placed with domestic investors.
“We are very pleased to be working with Banco Real to make additional funding available to support Rio Bravo’s residential real estate origination, securitization, and placement activities,” said Saran Kebet-Koulibaly, IFC’s associate director for Latin America and manager for Brazil. “IFC’s financing aims to increase the pool of funding for developers of much-needed housing for middle-income Brazilians and to provide opportunities for local institutional investors to diversify their portfolios into longer tenor, private sector debt instruments, such as securities backed by residential real estate.”
Nicholas Reade, CEO of Rio Bravo Securitizadora, said, “The IFC project will further demonstrate the viability of an alternative, private sector channel of residential real estate finance. By complementing relatively limited sources of funding for residential real estate construction and home purchases, this transaction—and similar efforts in the future
—should help address Brazil’s housing deficit and enhance the affordability of home buying for middle-income families.”
In another milestone, this transaction would involve IFC’s first credit-linked guarantee on behalf of an emerging-markets borrowing client, where IFC provides a full guarantee on the client’s local currency loan, as long as the country where the debtor is located is current on its predetermined debt obligations.
Lee Meddin, IFC’s deputy treasurer, said, "Through the issuance of sovereign-linked guarantees, IFC is now able to offer a product that meets rather than exceeds the needs of investors and lenders who do not require a guarantee rated higher than that of their own sovereign. Investors and lenders benefit by receiving a guarantee instrument with a higher yield than that offered on other securities fully backed by IFC's international triple-A rating."
IFC’s housing finance strategy in Brazil aims to increase market liquidity by supporting the business activities of securitization companies, mobilizing funding from capital markets investors, and helping standardize residential real estate origination and securitization practices along international lines. Where feasible, IFC also works with commercial banks on housing finance-related transactions.
For a variety of reasons, Brazil has a potentially large market for housing finance, with significant opportunities for securitization firms. There is an unmet demand for attractively priced financing with reasonable tenors from middle- and lower-income households as well as residential real estate developers. Another spur for growth is an effective legal and regulatory framework for primary and secondary market housing finance, which was established in the last 10 years but is only now starting to be used fully by financial sector intermediaries. Finally, macroeconomic stability and lower interest rates are increasingly the norm in Brazil, which should make residential real estate-related asset classes more attractive for investors than in the past, as well as home buying more feasible for lower- and middle-income families.
About Rio Bravo Securitizadora
Rio Bravo Securitizadora is one of the leading real estate securitization companies in Brazil. Its principal business activities include originating residential and commercial real estate receivables, subsequently securitizating them in CRI format and placing them with investors, and acting as a master servicer for CRI transactions. Rio Bravo Securitizadora’s largest shareholder is RB Crédito Companhia de Securitização Imobiliária, which owns approximately 58 percent of the company. Other investors include GMAC-RFC and IFC, which hold 20 percent and 19.9 percent stakes, respectively, as well as several individual shareholders. Rio Bravo Securitizadora’s CRI origination volumes grew over the period 2000-2005 from BRL11.7 million to BRL608.1 million ($284.2 million equivalent), in line with overall growth trends in the CRI market. At present, the company has a market share of 16 percent of total CRI issues in Brazil.
IFC in Brazil
During fiscal year 2005, Brazil received the largest amount of IFC financing, in dollar value, among Latin American countries. IFC invested $591million, including $190 million in syndications, in sectors ranging from agribusiness and transportation to manufacturing and the financial sector. IFC’s total portfolio in Brazil was $913 million at June 2005.
IFC's strategy for Brazil focuses on enhancing clients' prospects for competitiveness and growth, improving the country's social equity through voluntary actions by the private sector, and continuing to promote sustainability. Since 1956, when Brazil joined IFC, the Corporation has provided $7.45 billion, including syndications, for 162 companies in the country.
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
(
www.ifc.org
)
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. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.
