1 November 2019
VTB and DOM.RF have closed the largest mortgage securitization in the banks' history, selling a Rb95.7bn ($1.49bn) deal this week.
The portfolio is granular, pooling mortgages made to around 71,000 borrowers of owner-occupied apartments located throughout all major Russian regions. No buy-to-let or interest only loans are included.
The single two-year tranche is guaranteed by Russian-backed entity DOM.RF, the issuer of the transaction. VTB is a state-owned bank which arranged the deal.
The issue is placed by open subscription with the par value of each security of Rb1bn ($16m). Its legal maturity date is September 28, 2049, and its expected duration is about two years.
“The issue of mortgage bonds is becoming a significant factor in the development of the primary mortgage market and is aimed at increasing the availability of the loans,” said Andrey Suchkov, head of securitization department of VTB Capital. “We intend to further expand our cooperation with DOM.RF based on the goals incorporated in the national project.”
The Russian government has been expanding its securitization plans, issuing a Rb72.9bn ($1.15bn) RMBS in July. DOM.RF is the Russian housing institute of development, and has been expanding its domestic funding through mortgage securitization, providing an effective mechanism for long-term funding and risk distribution. In August 2018, DOM.RF mortgage originations grew by 50% to Rb260bn - Rb270bn ($4.10bn - $4.26bn).
“Lately, we have been primarily focusing on the Russian domestic market in terms of assets and investors,” said the VTB press office in an email to GlobalCapital. “In partnership with DOM.RF, we have made significant efforts in market-making and educating local investors, which currently allows us to place a high volume of bonds in the local market.”
In 2018, VTB and DOM.RF signed a memorandum on expanding their cooperation on mortgage bond projects for up to Rb500bn ($7.88bn). Since December 2016, ICB DOM.RF has placed 14 issues for a total amount exceeding Rb420bn ($6.62bn).
So far, Russian securitization has been focused on rouble issuance, catering to domestic investors. Russia is not prohibited from selling international mortgage bonds in roubles or euros, but sanctions would prevent US investors from investing in dollar-based Russian securitizations.
Soyuz bank originated the first rouble-demoninated auto securitizations in 2006, but the market slumped after the financial crisis. The sector saw a revitalisation in 2012 when VTB-24, the retial arm of VTB, announced that it intended to securitize Rb33bn ($1.1bn) over the course of 2012.
The bank confirmed that this is the largest rouble-denominated mortgage securitization to come out of Russia.