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Prospects for Securitisation in Russia

This article explores the key drivers and structural considerations for securitisation in Russia, with a focus on auto loans and residential mortgages. It also discusses the potential for securitisation in other emerging markets like Kazakhstan and Ukraine.

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Prospects for Securitisation in Russia

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  1. The Prospects for Securitisation in Russia Alex MedlockHead of OriginationMNB Capital Markets Securitisation as an effective financial instrument – Moscow 2006

  2. Agenda • Key drivers towards securitisation • Structural considerations - Russian Auto Loans Finance • Outlook 2006

  3. What do banks securitise? • MBS • Residential mortgages • Commercial mortgages • ABS • Auto loans • Consumer loans • Credit cards • Leases • SME loans • Future Flows • CDO • Backed by loans or bonds

  4. 2004 EMEA Securitisation – by asset class Total: €280 Billion Source: Moody’s

  5. Market Developments - ABS Issuance Volume in CIS, CE and SEE Total = $1,193.1 mm Total = $1,193.1 mm

  6. Optimise Funding Risk Management Capital Management Access to a new Investor base through higher rating and different asset class Reliable and competitive funding Liquidity Management Term Funding Transfer of risks associated with pool of loans Manage interest rate and credit risk Release of regulatory capital Improve ROE Drivers – Why do Bank Securitise? DETERMINE YOUR GOALS

  7. Drivers – the housing finance market In Russia • In EMEA RMBS accounts for over 50% of all issuance • Housing market in Russia growing rapidly but still small and more or less doubling each year • Less than 1% of GDP compared to 2-20% in other emerging markets and 40-70% in OECD countries • IFC estimated medium term potential of Russian mortgage market equivalent to $10bn- £30bn • Market dominated by Moscow and St. Petersburg

  8. Number of different ways to structure securitisation True Sale Synthetic Standalone or Term Deal Conduit Risk Transfer and Capital Relief Less local structuring No funding More complex to discuss with local regulators Structuring the Deal

  9. Term Deal Conduit Longer tenors Wide variety of assets Large volumes Easy to implement (documentation and marketing) No formal rating required Short term High quality assets Comparing Term Deal and Conduit Structures

  10. Structuring the Deal – key steps Pre Mandate Objectives Preliminary Portfolio Analysis Initial Legal Due Diligence Feasibility Study Structuring Selecting Portfolio Arrangers, Lawyers & Rating Agencies Select Structure Mandate Obtain Proposals Select Arrangers and Advisors Finance Structure note Allow sufficient time Talk to Investors Post Closing Extension

  11. Investors Structure Rating Legal Opinions Size Collateral Type of Offering Credit Enhancement FX Liquidity Public V Private Listing RegS/144a Structuring Considerations

  12. Deal Structure - Russian Auto Loans Finance Back-up Servicer: Russian Standard Bank Stichting 100% of Share Capital Trustee TMF Trustee Security Security Issuer: Russian Auto Loans Finance B.V. Cash Manager: JP Morgan Investors Notes Sale of Auto Loans Servicer Reports Collections Servicing Fee Servicer: Bank Soyuz Originator: Bank Soyuz

  13. Receivables: Number: Outstanding Balance: Asset Type: Geographic Diversity: Average LTV: WA Remaining Term: WA Seasoning: Arrears: Static/Revolving: Auto Loan Contracts denominated in USD 3,679 USD 49.8 Million New Foreign Cars Mainly Moscow region 70% 30 months 5 months No Loans> 1 month Static Collateral Summary

  14. Note Structure • Senior/Subordinated Notes paying sequential • Credit enhancement mainly through subordination of the Class B and Class C notes plus Reserve Fund • Expenses Contingency Fund Class A Notes Class B Notes $3.98 M B2 Class C Notes $1.99 M Class A1 $43.7 M Baa3 Class A2 $0.1 M N/R

  15. Deal Performance • Deal closed on 24 July 2005 • Class A1 Notes US$ Millions Note Payment Dates (10th) • Subordination has increased from 12% to 19.3%

  16. Investors – Bank Soyuz • The notes were rated by Moody’s and sold to Asian, European and off-shore American investors Distributionby Region Type of Investor

  17. Russia - the story so far Gas export receivables - USD 1.25bln issued Jul 2004 - Maturity: Feb 2020. Priced at 7.201%. RegS/144a. Rating: BBB- Offshore credit card receivables - USD 225m issued Oct 2005 – Maturity: Nov 2009. Priced at 9.75% Auto loans USD 40m issued July 05 – Maturity: July 2010. Coupon: 1m Libor plus1.75%pa. Rating Baa3 Residential Mortgages USD 50m Warehouse 1 year Loan Facility – Nov 2005 Consumer Loans - Phase I €126.5 m (Phase II €164.5m to be placed during the nine months from closing). Issued Dec 2005 Maturity Dec 2012. Coupon: 1m Euribor plus 2.5%pa

  18. Outlook for securitisation - 2006 • Russia • Residential mortgages • Auto loans • Consumer loans • Leases • Future flows • Kazakhstan • Future flows • Residential mortgages • Consumer loans • Ukraine • Residential mortgages

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