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Securitization in Emerging Markets
- Turkish Case -
Bratislava, May 15, 2008
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• Daruma is an independent and the leading Turkish Corporate Finance House
• Converted itself to fully licensed Securities Investment & Brokerage House
• Established in 1998, 40 professionals now, headquartered in Istanbul with liaison offices in Bucharest and Sofia
• Differentiated by strong origination ability, structure (financial and legal), and close quality deals
• Dedicated, experienced and competent management team with strong entrepreneurial skills
• In addition to Turkey, serves to a wider geographical area – Bulgaria, Romania and India
• Widespread financial products & services portfolio
• The vision is to become leading regional Corporate Finance House and provide high quality investment banking services
• Strong track record with more than 225 closings – and deal volume in excess of USD 2.5 Bn
• Exclusive Corporate Finance Partner with LBBW, M&T Bank, Dubai Bank and Turkish Partner of Merger Alliances
The Real Story – Six Phases of a Securitization Project
Securitization in Emerging Markets – Turkish Case
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• Enthusiasm
• Disillusionment
• Panic
• Search for the Guilty
• Punishment of the Innocent
• Praise and Honors for the Non-Participants
• This is pretty much the market experience for every transaction irrespective of the geography and size...
The Real Story – Six Phases of a Securitization Project
Securitization in Emerging Markets – Turkish Case
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• Turkey and the surrounding geography including Romania and Bulgaria offers vast potential for the securitization market
• Albeit this potential, there is lack of a corporate securitisation market in those countries
• Financial sector companies represent the sole set of originators
• Current asset classes are limited to credit card receivables, check receivables, diversified payment right receivables, leasing receivables
• Therefore, promising future for various asset classes in corporate balance sheets
• Similarly, room for different types of Asset Backed instruments for the development of the market
General Outlook
Securitization in Emerging Markets – Turkish Case
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Borrower’s Charecteristics
• There are conceptual differences in the definition of SMEs amongst different countries
• EU Member States traditionally had their own definition of an SME, though converging into same standards lately
• The current SME definition by the EU categorizes companies with fewer than 50 employees as "small", and those with fewer than 250 as "medium“. Turkey also uses the same definition
• The main difference between Turkey and EU regarding SME definition is the turnover consideration:
– Minimum annual turnover treshold according to the EU countries is € 2 million to € 49 million.
– In Turkey, its is between € 0.6 – € 15 million
• Hence, the initial steps should be rather extending securitization transactions to upper-middle market companies before reaching SME’s
Securitization in Emerging Markets – Turkish Case
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Market Enviroment for SME’s
• Easier access to bank markets - Availability of standardized, commodity financing products for SME’s, mainly from domestic banks
• SME’s may prefer to use evergreen revolving facilities backed by existing receivables – mostly for post financing; similarly, Reverse Factoring is developing
• No domestic capital market financing availability
• Relative inadequate sophistication of financial markets and products
• Lack of know-how on the corporate side for alternative financing sources
• Crowding-out effect of financial sector originators
• Developing legal framework and regulatory control over securitization transactions
Securitization in Emerging Markets – Turkish Case
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Situation Analysis – Originator Challenges
• To create efficient, reputable asset classes
• To achieve Pricing Advantages, preferably below Sovereign
• To achieve Cost Efficiency, bearing in mind the small sizes of the companies and the underlying asset volumes
• To create “user-friendly” transaction structures with solid credit enhancements
• To work out with the underlying legal framework and “translate” it to investor language
• To reach the investor base by strong and efficient distribution channel
• Getting the rating agencies on board – relative inexperience for corporate rating strategies
• Getting the monoline insurers on board – smaller deal sizes
Securitization in Emerging Markets – Turkish Case
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Situation Analysis – Investor Base Challenges
• Mostly first comers to the market
• Volatilities in Emerging Markets
• Relatively scarce lines for SME’s, especially for new comers
• Need to have credit enhancement for portfolio investors – lower deal ratings
• Difficulty of price comparisons – lack of track record
• Need for mitigating the servicing risk and streamlining securitization operations
• Need for sound investor reporting mechanism
Securitization in Emerging Markets – Turkish Case
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Sample Case Studies – Financial Sector Originators, Banks
• Diversified Payment Right Securitizations for banks to obtain long term funding
• Approx Eur 10 Bn of existing deal size for various originators
• Asset classes including trade payment receivables, worker remittances, money transfers from mostly OECD countries
• Securitization of hard currency off-shore receivables
• Future Flow / True Sale Investment grade structures – wrapped by monoline insurers
• Private Placements, 144 A’s - Continuous re-issuances
• 5 to 10-years facilities, arranged by investment banks, serviced by the originators
Securitization in Emerging Markets – Turkish Case
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Sample Case Studies – Financial Sector Originators, Leasing Co’s
• Leasing Receivables Securitizations for Leasing Companies to obtain further liquidity
• Relatively smaller tickets – Eur 100 to Eur 250 Millions for only selective originators
• Underlying assets comprising of corporate and commercial leasing receivables
• Hard currency, domestic receivables
• Existing Flow / True Sale structures – partial guarantee by IFC umbrella
• Private Placements, 144 A’s
• 5 to 7-years facilities, arranged by investment banks, serviced by the originators
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Prospects Ahead..
• Growing company sizes and improving domestic capital markets
• Developing mortgage market – boost for securitization concept in domestic market
• Increasing need for alternative financing sources
• Increasing demand for longer tenor financings
• Improving risk understanding and appetite on the investor side
• Converging operational, accounting and corporate governance practices
Securitization in Emerging Markets – Turkish Case
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Daruma Corporate Finance Inc.
Address: Büyükdere Cad. 100-102 Maya Akar Center Floor 27Esentepe 34394 Istanbul / TURKEY
Telephone: +90 212 370 6060
Fax: +90 212 370 6000
E Mail [email protected]
Contact
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Contacts: Mr. Okan Altug – Managing [email protected]
Mr. Bertan Yordem – PartnerInternational Finance & [email protected]
Contact
