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2000 Latin American securitisation developments:
In year 2000, volume of issuance from Latin American market declined as compared to 1999 volumes. A report by Standard and Poor's [Latin American Securitization Markets Evolve Further in 2000, 16th Jan., 2001] attributes the decline to lower activity by the large oil producers, who issued half the total dollar amount that they did in 1999, country-specific economic problems and restructuring of banking in some countries.
The total cross border issuance in 2000 was USD 2.6 billion, of which nearly 80% comprised of future flows. The issuers were from only the largest Latin American countries going to the international market. Mexico maintained its lead as the country with the largest volume with 45% of the total, mainly due to the continued issuance by oil producer Petroleos Mexicanos (Pemex). Argentina followed with a 29% share, which included the fourth issue from the established Banco Hipotecario S.A. (BHN IV Mortgage Trust). Finally, Brazil, with a 26% share of the issuance market, was the surprise last year: almost absent in the market in 1999, there were four transactions from Brazilian originators in 2000.
Standard and Poor's regards Latin securitization as a process of evolution. It says: "During 2000, Latin American countries continued moving into the second stage of securitization: from first stage, cross-border future flow issuance, to securitizing existing assets that are denominated in local currencies and selling these securities in their domestic capital markets. Changes in regulatory, tax, and legal frameworks, and the privatization of pension systems have been the driving forces in this process."
Regarding the prospects in 2001, Standard and Poor's has the following observations to make: "For 2001, Standard & Poor's generally expects further utilization of the current types of transactions, with future flows continuing being the main cross-border asset class for the region. Nonetheless, Standard & Poor's also expects new asset types and new countries to enter the market this year. The conditions that shaped the market in 2000 will still be applicable this year, with the potential effect of a new factor: an economic slowdown in the U.S. economy.
Standard & Poor's expects to see more financial future flow issuance from financial institutions in 2001 than in 2000, in some cases originating from banks that have not accessed the cross-border securitization market before.
Cross-border existing ABS will continue at the same pace of the last two years, with structures becoming more and more innovative. It is also expected that issues will have lower levels of credit enhancement as issuers establish themselves in the market. As a natural development of a country's capital markets, securitization activity in local markets in the coming years will continue growing to become a suitable alternative to cross-border financing for some countries, as is already the case in Argentina.
Finally, the range of external credit enhancement options available to issuers will continue increasing. Standard & Poor's expects a continuation in the growth in this type of credit enhancement in coming years, as new types of partial guarantees and insurance are developed and as new providers enter the market. "
Securitisation markets have been drawing enormous interest among market practitioners in developing countries, looking outside their own markets. Cross-border investments in securitised transactions have been directed towards emerging markets, and among emerging markets, Latin America has been at the center of attraction particularly among US practitioners. The crisis in Asia worked to the advantage of Latin American markets.
During 1995, the Mexican Peso crisis resulted into huge financial outflows from Mexico, Argentina, Chile and Brazil with investors withdrawing their investments. This was dubbed as the "tequila effect" (Tequila is a Mexican wine, a apéritif.) However, in 1997, Latin American economies started reporting active investor interest again.
One of the principal advantages of Latin American economies, to a US investor, is that these countries are by and large "dollarised". Dollarisation refers to a situation where principal savings and investment activity in a country is denominated in dollars, thereby eliminating currency risk, otherwise a major factor in these economies.
Origins of securitisation:
Securitisation in Latin America is not very old. Argentina witnessed the first securitization in late 1993 as Citicorp used an offshore vehicle to finance a pool of $50 million of auto loans generated within Argentina.
From 1995-97, there was a general lack of interest in the market since Latin American issuers depended largely on cross-border investors.
However, in 1997 and 1998, a number of transactions has been reported indicating both depth and width in the market. The range of applications includes auto loans, residential mortgages and commercial mortgages, credit cards, oil export income, oilfield royalties, air tickets securitisation, etc.