The development of Chile's domestic securitization market is gathering pace, with half a dozen transactions in the pipeline following the groundbreaking deal launched in January by Transa Securitizadora. As Euromoney went to press, Transa was about to launch a second offering, consisting of $9.7 million of notes backed by mortgage loans.
Potential issuers believe asset-backed paper will prove highly attractive to institutional investors, with the primary buyers being insurance companies and pension fund managers (Administradores de Fondos de Pensiones - AFPs). Both have an unsatisfied appetite for longer-tenor paper. The AFPs currently have around $28 billion under management, and even a small portfolio allocation into asset-backed bonds will support the growth of a sizeable market.
Securitization has been mooted for some years in Chile, but progress has been held up by delays in passing appropriate legislation. And there is still much to be done. At present only non-bank financial institutions are allowed to do securitizations, and the much bigger commercial banks are excluded from the market. Thus the first securitizations are likely to involve the specialized mortgage finance companies and the leasing groups.
First off the mark was Transa Securitizadora, a unit of mortgage lender Administradora de Mutuos Hipotecarios del Centro, which successfully closed a deal back in January. Like most financial transactions in Chile - renting an apartment, buying a car through instalment payments or entering into a mortgage - the Transa issue was denominated in the inflation-adjusted unit known as the unidad de fomento. The UF's value is adjusted daily and as of late April stood at Ps13,542 ($32.40).
Transa was pleased with the reception for its first deal - UF302,000 of notes backed by 373 mortgage loans split into two tranches with final maturities of 11.5 years and 24.5 years respectively. The offering, led by securities house BanChile Corredores de Bolsa, was eagerly subscribed to by asset managers at the AFPs and insurance companies.
In late April Transa was about to launch a second UF300,000 deal, this time led by securities house Larrain Vial. And it plans two more offerings during 1997. In the meantime, mortgage company Camara Chilena de la Construccion is also preparing the ground for its first-ever issue. Cristobal Cruz, general manager of the securitization unit at Camara de la Construccion, explains that the issue is currently being looked at by the rating agencies, and should come to market over the next few months. It will be arranged by brokerage IM Trust, and is likely to be bigger than the Transa issues, at around UF1.5 million.
Another group of companies considering securitization are the leasing companies, which last year were authorized to begin leasing houses to individuals. The advantage over a mortgage is that leasing usually provides 100% financing for the property. The lessee makes monthly payments to the leasing company over the life of the lease, at the end of which there is usually an option to buy the property for a token payment.
Already around 65,000 houses are leased in Chile, and the leasing companies, mostly subsidiaries of commercial banks, are looking to this sector as an important engine of growth. This will require new funding sources, and analysts say that the first securitization of house leases could take place this year. One likely candidate to be among the first is Bhif Leasing Habitacional, which has been active in building up a portfolio of home leases.
However analysts say that until the law widens to allow commercial banks access to the market, securitization will remain a relatively small market. The banks already have access to a liquid market selling mortgage bonds known as letras hipotecarias, which allow them to fund their mortgage-lending activities in what amounts to a crude form of securitization. But progress on allowing the banks into the securitization market proper, where they will be able to package up assets such as auto loans and credit card receivables, is slow. "They have been talking about this for three years," says one analyst, who points out that legislation will have to be passed by congress, which could take several more years. "For securitization to really grow rapidly in Chile the banks will have to be allowed to participate," he says. Michael Marray