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MIAMI (Standard & Poor's) May 10, 2007--If you build a legal framework for
existing-asset securitization, will investors come? Turkey seems to think so,
according to panelists at the recent Spring ABS 2007 conference in Miami.
Nevertheless, key steps remain, and chief among them is enticing cross-border
investors in the absence of a mature domestic investor base.
The country that leads the world in future flow securitization--in which
Turkish originators securitized $5.8 billion in cash flow streams generated
offshore in 2006--is apparently taking the road less traveled as it
establishes an existing-asset-backed securitization market. This market, once
created, will see offshore investors investing in the securitizations of local
assets, such as consumer loans, auto loans, and home mortgages. Turkey is
somewhat unique in that it followed the path of certain Western European
countries by passing legislation to build a legal framework before a mature
investor base was in place. Still, one panelist said that it's a "rare
situation," noting that the country's primary "systemic obstacle is mainly its
lack of domestic investors."
Though that doesn't mean that other obstacles aren't present as well,
such as the need for political and macroeconomic stability, explained Gabriel
Wieder, an associate director in Standard & Poor's Ratings Services'
Structured Finance Ratings group, who spoke on the panel.
The country has made great strides on both fronts, but there's still more
work to be done. One issue has been the country's currency, the lira, which
has showed some volatility in the past. The way around this, Mr. Wieder
explained, is an initiative to create cross-border currency swaps. "Currency
risk is going to be a challenge," he said. "You need someone willing to take
that risk." Mexico went through a similar exercise when building its
securitization market, and has since acquired longer-dated currency swaps.
But it's some of those structural mitigants against country-related risks
that have made Turkey the leading future flow market in the world--namely, the
fact that receivables are in hard currency and the debt is serviced offshore.
Those same factors are less applicable for existing-asset securitizations.
Nevertheless, panelists still believed that these transactions could
begin to appear in Turkey later in 2007--with consumer loan or auto loan deals
being the most likely, before home mortgage securitizations--but the market is
still awaiting the outcome of general elections on July 22.
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