15 December 2017
Structured Credit Investor
Debut Russian RMBS 'just the start'
VTB Capital has closed an inaugural RMBS under the Russian government-backed AHML programme, which the bank suggests could be one of many securitisations to come, across a range of asset classes. The RUB48.2bn transaction is a securitization of mortgage portfolio of the bank’s retail arm, VTB24, is secured by privately-owned apartments and features a single-tranche pass-through structure, offering a fixed annual coupon of 11.5%.
Andrey Suchkov, head of securitisation at VTB Capital, comments that the RMBS provides a range of benefits to investors. "The transaction is backed by a government guarantee and so they have a quasi-government status, which is a positive for investors. Investors also get the benefit of preferential tax treatment and low regulatory capital requirements," he comments.
While the transaction is guaranteed by the Russian government, Suckhov says that the securities will be sold to a range of private investors. These will be mainly non-government pension funds, insurance firms and banks.
All the investors in the deal are Russia-based, largely because the transaction is issued in rubles. Suchkov says that to attract foreign investors, the deal would have required the implementation of a cross-currency swap, which would have eroded the profitability of the transaction.
Aiming the transaction squarely at domestic investors has, however, raised additional challenges. Suchkov comments: "A significant amount of investor education around the structure was needed, particularly as straightforward products are more widespread in the Russian market than complex, structured ones. For example, there were investor concerns about prepayment risk, which we needed to educate investors on."
Additionally, Suchkov explains that investors demand liquidity in the domestic RMBS market - which is lacking. As such, he says that VTB has the challenge of establishing a secondary market, which will only come from more primary issuance.
Suchkov adds: "We would like to structure around RUB150bn in the year ahead in terms of both private and AHML-backed issuance, but to do this, we need to establish a proper market. That will be quite a challenge in the year ahead."
This latest deal is unusual for an RMBS, says Suchkov, as it features only a single tranche. However, this is because investor protection is provided by the government guarantee. While it also has an interest rate swap, Suchkov says that he foresees later deals featuring structural enhancements.
In general, VTB Group has its hopes set on buoyant issuance for the future, not just in RMBS. Suchkov concludes: "We are hoping to expand the asset classes we securitise and are looking at securitising car loans and consumer loans next year. Car loans, in particular, is something we're working on and where there could be significant demand in Russia. These deals will be offered domestically, which will be a challenge, as they aren't used to auto and consumer ABS and it is another case of market-making and investor education."