Securitization used to be a dirty word in Brazil, with many investors intimidated by the risks of such a complex product and suspicious of promised double-digit returns in the local real currency. But since the creation of the fundos de investimento em direitos creditorios (credit receivables funds), FIDCs have become the vehicle of choice for non real-estate securitizations in Brazil, and foreign investors are flocking en masse to the market.
According to Uqbar, a local consultancy specializing in the sector, Brazil’s total securitization issuance was less than $25 million in 2002 but growth has been impressive. The market was worth $5.6 billion last year, with FIDCs being the most popular product by far, and is set to grow by about 15% this year, say São Paulo-based bankers. With some $750 million of FIDC-linked notes held by overseas investors, in 2007 foreigners could snap up an additional $2 billion in paper. "The demand is enormous," says Eduardo Rocha, a founding partner of Boa Esperança Recebiveis, which specializes in receivables.
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Securitization takes off in Brazil |
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Domestic volumes (2000-06) |
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Source: Moody’s Investor Services |
What has made FIDCs so attractive to yield-hungry investors is their flexibility and easy adaptation to a range of industries from auto loans to project finance. Even train commuters in São Paulo have been caught up in the fever, albeit unawares, after the city’s railway network operator, CPTM, launched a FIDC late last year. With a duration of about four years, the FIDC has one of the longest tenures in the market, drawing on receivables from its 21 stations used by 1.5 million people every day. It is likely to be a litmus test for foreign investors. Typically, the deals sold overseas, mainly to hedge funds, have had three-year maturities.
Consumer finance, especially auto loans, is another area where FIDCs have found market support. Aymore, the consumer finance arm of ABN Amro Real, issued a $110 million FIDC backed by vehicle financing, in December, while sugar producer Dedini-Dulcini Agroindustrial has also issued FIDCs, backed by future contracts to supply sugar and liquid sugar.
In a bid to attract more foreign interest, FIDCs have also gone offshore, allowing investors to buy into the funds without having to enter Brazil. In the first FIDC of its kind, Brazilian company Union National in November sold $160 million to about 15 hedge funds by setting up a US-based trust that is backed by its Brazilian FIDC.