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| Summary of Project Information (SPI) |
| This Summary of Project Information is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
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| Project number | 24236 |
| Project name | Rus Mortgage Sec |
| Country | Russian Federation |
| Sector | Finance & Insurance |
| Department | Global Financial Markets Group |
| Company name | Russian Mortgage Backed Securities 2006-1 S.A. |
| Environmental category | C |
| Date SPI disclosed | February 2, 2006 |
| Projected board date | March 30, 2006 |
| Status | Active |
| Previous Events | Invested: July 19, 2006
Signed: July 18, 2006
Approved: March 30, 2006 |
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| Description of company and purpose of project |
The project involves providing support to the first mortgage-backed securitization in the Russian Federation, where the development of a market-based refinancing mechanism is critical to the development of a sustainable mortgage finance cycle.
IFC is considering providing support to the issue of mortgage-backed securities (MBS) to international investors. Under the proposed arrangement, IFC will provide credit support to the issuance of senior notes to allow the senior notes to receive an appropriate international rating.
The mortgage pool to be securitized is comprised of residential mortgages. The residential mortgages will be sold to a special purpose vehicle (“SPV”) which will issue debt instruments that investors may purchase, and IFC’s credit support would be in favor of the owners of these senior debt instruments. The owners of these debt instruments would own the rights to the principal and interest payments made under the residential mortgage agreements, and IFC’s credit risk will depend on the underlying mortgages.
The project will contribute to development of a secondary mortgage market generally and MBS market development in Russia more specifically based on proven origination standards. The structure of the transaction is designed to be replicable, and may offer a useful template for use by other originators and arrangers for subsequent transactions. Since the Russian legal basis for securitization is also being developed, this project may also influence the domestic securitization market by establishing a market standard for MBS transactions and increased transparency. |
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| Project sponsor and major shareholders of project company |
| The project sponsor is Vneshtorgbank (“VTB”), which has originated the pool of mortgages that is to be securitized. VTB is owned primarily by the Russian government. VTB has announced its plans for an initial public offering of an up to 25% stake in London and Moscow. The aim is to sell the shares as early as November, 2006, or the first quarter of 2007 at the latest. VTB is the second-largest bank in Russia and one of the few banks with sufficiently large mortgage portfolios to warrant securitization. |
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| Total project cost and proposed IFC investment |
Total debt issuance by the SPV is expected to be up to $100 million face value, and IFC’s investment likely to be up to $25 million (subject to project structuring). The project therefore represents $100 million in mortgage loans (principal outstanding) at the time of completion.
IFC’s investment will consist of the purchase of mezzanine-level notes for its own account. IFC may also provide certain liquidity related credit enhancements for the benefit of investors. |
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| Location of project and description of site |
| The project will consist of residential mortgage loans to individuals for the purchase of residential property in Moscow, St. Petersburg, and the surrounding regions (Moscow and Leningrad Oblasts). |
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| Project Development Impact and IFC's Role |
The creation of a proven refinancing mechanism is expected to be a critical factor in developing a sustainable mortgage finance cycle throughout the Russian Federation. This project is also expected to reinforce the private-sector mortgage industry based on best-practice mortgage origination criteria. By demonstrating the attractiveness of Russian mortgage sector assets, it will encourage development of refinancing mechanisms based on increasing the liquidity of mortgage pools by converting like assets into tradable securities. The structure is believed to be replicable by other institutions, and should increase the level of competition on the mortgage market (both primary and secondary). The structure may also be appropriate for securitization of other assets such as leases, consumer loans, small business loans, and the like.
IFC’s role is to provide credit support to receive the required rating, and to participate in structuring the transaction. As one of the largest providers of finance for mortgage lending in Russia, IFC is well placed to evaluate the quality of the underlying mortgages. IFC has also supported the development of the legal infrastructure for securitization in Russia, including participating in a Working Group reporting to the State Duma; in 2004, IFC published a report (available on IFC’s web site) entitled “Securitization in Russia” with specific recommendations and changes needed for securitization. IFC also runs the Russia Primary Mortgage Market Project, which works with Russian banks to develop the standards and procedures needed for increased mortgage lending. |
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| Environmental and social issues - Category C |
Based on the available information, this is a Category C project according to IFC's environmental and social review procedure. The nature of VTB's portfolio (residential mortgages) means that there will be minimal environmental impacts associated with this investment. Therefore, no further environmental or social analysis is required.
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| To contact the project company, please write to: |
Andrey Suchkov
Senior Vice President
Head of Retail
E-mail: suchkov@vtb.ru
Tel: 7-495-956-30-55 |
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