Brazilian structured finance awaits real estate takeoff
Brazilian structured credit based on such underlyings as consumer loans, auto finance and trade receivables is in rude health but the underdeveloped RMBS and CMBS market will only take off with greater supply. Even then, investors may be wary of buying it. Rob Dwyer reports from São Paulo.
IN THE FIRST half of 2010 the Brazilian structured finance market has flourished in a benign domestic economic climate. As José Olympio Pereira, co-head of investment banking at Credit Suisse in Brazil says: "Brazil’s country risk premium is lower than that of Greece, Portugal, Spain and Italy – the tables have turned. Brazil’s macro indicators are better; we have a lower debt to GDP ratio, a primary surplus, lower deficits and more currency reserves." Issuance of fundos de investimento em direitos créditos (FIDCs), the dominant structured finance instrument, has grown, driven by expansion in the diverse range of underlying assets: consumer loans, auto loans, trade receivables and other less common asset types. Such diversification characterizes and distinguishes Brazilian structured credit as much as the flip-side – the small number of the RMBS and CMBS real estate-based transactions, in Brazil certificados de recebíveis imobiliários (CRIs), that typically dominate structured credit in other markets.
Standard & Poor’s reports that in the first six months of this year the number of new Brazilian structured finance transactions that it rated increased by 75% on the same period of 2009. It attributes this strong performance to the country’s healthy GDP growth, stronger consumption levels and higher credit availability.