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Argentina: MBS issuance felled by sub-prime contagion

Argentina’s asset-backed securities market shows no sign of slowing down but the sub-prime crisis has killed off the country’s nascent mortgage-backed securities market.

Total securitizations in Argentina in 2007 amounted to Ps8.4 billion ($2.7 billion), and ABS contributed 83%, according to Standard & Poor’s. In 2006, total securitizations added up to Ps7.5 billion and ABS made up 80%.

Last year, four-fifths of ABS issuance was by local department stores and electronic goods stores, including Fravega, Garbarino and Red Megatone, according to local investment bank Banco de Valores. The other 20% was issued by credit-card and store-card providers, including Tarjeta Shopping and Tarjeta Naranja.

Before the sub-prime crisis broke, an MBS market was starting to reappear. In 2005, total MBS issuance amounted to Ps623 million, in 2006 the figure was Ps255 million, but last year issuance was just Ps44 million, according to Banco de Valores.

Spreads on longer-term transactions in Argentina mean that mortgage-backed issuance would be unaffordable for most borrowers at today’s rates. Argentina’s debt spreads over comparable US treasuries were about 470 basis points on JPMorgan’s EMBI+ bond index in mid-February against 195bp at the end of January 2007.

Ignacio Estruga, an emerging markets structured finance analyst at Standard & Poor’s, says: "We expect ABS issuance in Argentina to remain stable despite the worldwide market disruption.

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