Opening up to securitisation

zoom

Securitisation - selling the rights to future revenue from an income stream in return for a payment now - seems to be taking off in the Gulf at last.

Last month, Qatar Islamic Bank announced that it would become the first bank in the Middle East to securitise part of its assets. It has mandated an international investment bank and Kuwait's Rasameel Structured Finance Company to advise jointly on a securitisation review of part of its assets.

Meanwhile, in the UAE, mortgage provider Tamweel priced a US$210m residential asset-backed securitisation. The Emirates National Securitisation Corporation (ENSEC) structured the transaction, and is currently working on others it hopes will be equally successful.

Sandeep Chaudhry, CEO, Ensec, says: "It is a very innovative transaction in a local context, and it provides them a number of very attractive benefits including attractively priced medium term funding on a non-recourse basis with high ratings. In that sense it's an exciting deal to be part of."

He does not believe that countries necessarily need specific securitisation laws in order for transactions to be successful, just as long as a jurisdiction has laws that allow a perfected true sale, permit a special purpose vehicle (SPV) to raise financing, and outline clear distinctions between the risk carried by the SPV and by the originator. Chaudhry points out that France was one of the first countries to pass specific laws for securitisation, but they became outdated very quickly as the product evolved, meaning that most deals were based on aspects of French civil code instead.

"Can you do transactions that are world-class and world-equivalent in the GCC?" asks Chaudhry. "We think the answer to that is yes. It's certainly more straightforward in some jurisdictions than others, but all it really means is how much intensity needs to go into the analysis to create that structure.

"In the UAE we're looking at residential asset-backed financing, we're looking at commercial real estate-backed financing, we're looking at operating cashflows, infrastructure assets, all sorts of consumer banking assets, so it's a pretty open situation here."

He adds: "Initially, the first few deals will probably be more international investor-led, as they tend to be price-makers, but over time we will certainly be keen to develop the dialogue with the key local investors and help them see the benefits of securitisation as a potential investment for their portfolios."

Chaudhry expects strong interest from international capital markets. "They're hungry for diversification and they're hungry for yield," he says.

"Given that market dynamic, we don't anticipate there being any major concerns with tapping into those international capital market investors."

ENSEC will use an onshore SPV as its asset purchase company and an offshore SPV as its issuer.

"On the onshore side we're looking at a DIFC company, and on the offshore side we're looking at the Cayman Islands as the issuer," says Chaudhry.

It is currently working on transactions covering a number of asset classes including residential home finance, commercial real estate and operating cashflows, but Chaudhry points out that securitisations elsewhere in the world have been based on assets as diverse as water, electricity and rock music recordings.

"During June, there was in excess of US$60 bn of securitisation paper anticipated in the European markets," he says. "If Middle East securitisation paper is going to gain access to that investor pool and hold its own against all of that competing paper, it needs to have scale as well as all of the other benefits."

Chaudhry believes it is time for the Middle East to catch up. "If you look around the world, transactions have been done in the US, in Europe, in Eastern Europe, Russia, Africa, Asia, and Australasia," he says. "The only area of the world that hasn't seen tremendous flow in these transactions is the whole Middle East region, and one of the objectives behind setting up ENSEC was to help us understand why that was the case, educate the market in why the benefits of securitisation should no longer be absent from this market and be an integral part of the funding pool of any CFO or treasurer."

Print | Email | Discuss this article |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Security Code *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM