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Onshore assets ripen in Turkish spring
Felipe Ossa, Asset Securitization Report--SourceMedia (May 8, 2006)

Last year, Turkey turned the landscape of offshore future flows into its virtual fiefdom. Now Turkish issuers appear to be marching on to existing onshore assets. So far, the sector is just talk but a pipeline is building, according to sources. What's motivating originators is a newfound and fast-rising appetite for Turkish lira funding, a growing securitizable pool, and arrangers that have become familiar with the local terrain via their experience on deals backed by diversified payment rights and offshore credit card receivables.

"[Turkish companies] are looking to free up capital and find potentially cheaper forms of funding," said Chris Such, a director with Standard & Poor's. "It's about capital efficiency as well and looking at Basel II in terms of balance sheet management."

Assets ripe for the picking include consumer loans, which some expect to come first this year; auto loans; credit cards; mortgages; and leases, with inquiries centered on the former three, sources said.

Onshore asset securitization isn't entirely alien to Turkey; there is a single precursor to the impending tide. At the end of 1999, the leasing finance arm of Turkiye Garanti Bankasi (Garanti) issued a $43 million-equivalent deal backed by leases. That transaction securitized a portion of a $50 million loan extended by the International Finance Corp. to Garanti Leasing. The preferred creditor status of the IFC helped the transaction secure investment-grade ratings from Moody's Investors Service and Duff & Phelps Credit Rating.

As any emerging markets veteran knows, the problem with securitizing onshore assets in a cross-border transaction is that the domestic legal framework holds much more sway than it does with offshore collateral. Securitization can be conducted as true sale under Turkish law, according to Burcu Acarturk Yildiz, a partner at Pekin & Pekin. A mortgage, however, might prove to be a special case, as it isn't deemed to be an asset but rather a security, she added. A draft law on housing finance, timed to take effect by the end of the second quarter, would facilitate the securitization of mortgages, according to Acarturk Yildiz.

A major catalyst for the securitization of mortgages and other long-term onshore assets is that local banks need sources of funding other than deposits, which are by nature short-term. "There is a major interest rate mismatch here," said Dan Stadnik, a director in the asset securitization department of ABN Amro. "That's another driver."

Another trend sending Turkish originators of onshore assets into the arms of structured finance arrangers is the rising appetite for lira funding. "This wasn't the case just 18 months ago," said one London-based banker, adding that only now are issuers with securitizable assets keen on funding themselves in local currency. And while foreign currency transactions with some kind of currency hedge is likely to become the most common form of structure, players said straight lira deals targeting risk-hungry foreign investors shouldn't be ruled out. Indeed, there's talk that one of Turkey's three biggest banks, Garanti, Turkiye Is Bankasi (Isbank), or Akbank, have already awarded a mandate for a Turkish lira deal backed by a domestic credit card portfolio. While this would avoid a currency mismatch, it also limits the potential pool of investors to those itching to take on straight lira risk. Potential losses in foreign currency are steeper, but then again so are the rewards. For instance, U.S. investors who've bought deals in Brazilian reals have made out like bandits, as double-digit yields in an appreciating currency have meant fat gains in dollars. Issuing local currency deal into the cross-border arena isn't new to the Eurasian swathe of the world either, as Russia has closed such a deal backed by leases (see story on next page).

In the realm of credit cards, Turkish banks have securitized offshore receivables - Akbank and Isbank did so just last December to the tune of $850 million - but onshore card receivables haven't been touched, sources said. While tourists and other foreign visitors to Turkey generate the former kind of receivable, locals making everyday purchases generate the onshore variety.

While the buzz of existing assets grows louder and starts to accompany actual transactions, offshore future flows will still remain a mainstay of the Turkish securitization market for some time, sources said. Even with banker fees on DPR and offshore credit card transactions shrinking as the deals become commoditized, the sector is still a reliable source of revenue for arrangers. What's more, indications are that monoline appetite hasn't been spent, despite last year's feeding frenzy, which amounted to $3.2 billion of wrapped Turkish deals crossing the Bosporus. On the supply side, originators have yet to tap out their DPR programs, according to Michael Morcom, first vice president of emerging markets at Ambac. "No one was at its limit last year," he said. "And as tenors are stretched, all else being equal, this will allow more leverage in a program."

David Lautier, vice president and senior analyst at Moody's Investors Service, also noted that, to borrow on a long-term basis, the leading Turkish banks would continue to rely on securitization. While Turkey's leading banks face a foreign currency cap of B1' for unsecured lending, they have been hitting Baa2' on their future flow deals, a full four notches above the sovereign ceiling of Ba3'. "This is why it's attractive to do those transactions where moratorium risk is mitigated," Lautier said. And he added that, with brisk economic activity, the flows behind diversified payment rights have continued to grow, leaving more room for further issuance.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.
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