The Prospects for Securitisation in Russia

Alex MedlockHead of OriginationMNB Capital Markets

Securitisation as an effective financial instrument – Moscow 2006

Agenda

• Key drivers towards securitisation• Structural considerations - Russian Auto

Loans Finance• Outlook 2006

What do banks securitise?

• MBS – Residential mortgages– Commercial mortgages

• ABS – Auto loans– Consumer loans– Credit cards– Leases– SME loans– Future Flows

• CDO– Backed by loans or bonds

2004 EMEA Securitisation – by asset class

CDO, 15.37%

CMBS, 7.84%

ABS, 23.49%

RMBS, 53.31%

Source: Moody’s

Total:€280 Billion

Market Developments - ABS Issuance Volume in CIS, CE and SEE

Russia42%

Kazakhstan34%

Czech Republic

12%

Poland7%

Latvia5%

Furure Flows, 59%

Consumer Loans, 13%

RMBS, 5%

Auto Loans, 4%

Credit Cards, 12%

CMBS, 7%

Total = $1,193.1 mm Total = $1,193.1 mm

Drivers – Why do Bank Securitise?

• Optimise Funding

• Risk Management

• Capital Management

Access to a new Investor base through higher rating and different asset class

Reliable and competitive funding Liquidity Management Term Funding

Transfer of risks associated with pool of loans

Manage interest rate and credit risk

Release of regulatory capital Improve ROE

DETERMINE YOUR GOALS

Drivers – the housing finance market In Russia

• In EMEA RMBS accounts for over 50% of all issuance

• Housing market in Russia growing rapidly but still small and more or less doubling each year

• Less than 1% of GDP compared to 2-20% in other emerging markets and 40-70% in OECD countries

• IFC estimated medium term potential of Russian mortgage market equivalent to $10bn- £30bn

• Market dominated by Moscow and St. Petersburg

Structuring the Deal

• Number of different ways to structure securitisation

• True Sale

• Synthetic

Standalone or Term Deal Conduit

Risk Transfer and Capital Relief Less local structuring No funding More complex to discuss with local

regulators

Comparing Term Deal and Conduit Structures

• Term Deal

• Conduit

Longer tenors Wide variety of assets Large volumes

Easy to implement (documentation and marketing)

No formal rating required Short term High quality assets

Structuring the Deal – key steps

Pre Mandate

Structuring

Mandate

Extension

ObjectivesPreliminary Portfolio AnalysisInitial Legal Due DiligenceFeasibility Study

Selecting PortfolioArrangers, Lawyers & Rating AgenciesSelect Structure

Obtain ProposalsSelect Arrangers and AdvisorsFinance Structure note

Allow sufficient timeTalk to InvestorsPost Closing

Structuring Considerations

• Investors

• Structure

• Rating• Legal Opinions• Size• Collateral• Type of Offering

Credit Enhancement FX Liquidity

Public V Private Listing RegS/144a

Deal Structure - Russian Auto Loans Finance

Issuer:Russian Auto Loans

Finance B.V.

TrusteeTMF Trustee

Stichting100% of Share Capital

Back-up Servicer:Russian Standard Bank

Originator:Bank Soyuz

InvestorsCash Manager:JP Morgan

Servicer:Bank Soyuz

Security Security

Notes

Sale of Auto LoansCollections Servicing

Fee

ServicerReports

Collateral Summary

Receivables:Number:Outstanding Balance:Asset Type:Geographic Diversity:Average LTV:WA Remaining Term:WA Seasoning:Arrears:Static/Revolving:

Auto Loan Contracts denominated in USD3,679USD 49.8 MillionNew Foreign CarsMainly Moscow region70%30 months5 monthsNo Loans> 1 monthStatic

Note Structure

• Senior/Subordinated Notes paying sequential• Credit enhancement mainly through subordination of the Class B

and Class C notes plus Reserve Fund• Expenses Contingency Fund

Class A Notes

Class B Notes$3.98 M B2

Class C Notes$1.99 M

Class A1$43.7 M Baa3

Class A2$0.1 M N/R

Deal Performance

05

101520

2530354045

Aug Sept Oct Nov Dec Jan Feb

US

$ M

illio

ns

•Deal closed on 24 July 2005•Class A1 Notes

•Subordination has increased from 12% to 19.3%Note Payment Dates (10th)

The notes were rated by Moody’s and sold to Asian, European and off-shore American investors

Distribution by Region Type of Investor

Investors – Bank Soyuz

Off-Shore US15%

South Eastern Europe

10%

Europe 30%

Asia 45%

Insurance10%

Hedge funds 25%

Commercial Banks65%

Russia - the story so far

Gas export receivables - USD 1.25bln issued Jul 2004 - Maturity: Feb 2020. Priced at 7.201%. RegS/144a. Rating: BBB-

Offshore credit card receivables - USD 225m issued Oct 2005 – Maturity: Nov 2009. Priced at 9.75%

Auto loans USD 40m issued July 05 – Maturity: July 2010. Coupon: 1m Libor plus1.75%pa. Rating Baa3

Residential Mortgages USD 50m Warehouse 1 year Loan Facility – Nov 2005

Consumer Loans - Phase I €126.5 m (Phase II €164.5m to be placed during the nine months from closing). Issued Dec 2005Maturity Dec 2012. Coupon: 1m Euribor plus 2.5%pa

Outlook for securitisation - 2006

• Russia– Residential mortgages– Auto loans– Consumer loans– Leases– Future flows

• Kazakhstan– Future flows– Residential mortgages– Consumer loans

• Ukraine– Residential mortgages