LatAm Challenged to Boost Securitization

Despite recent successful deals in the region, challenges remain for LatAm issuers to fully exploit the potential for securitization transactions. Growing markets in Brazil and cross-border deals such as the recent $229m transaction from Peru’s EsSalud have boosted hopes, though caution from the buyside remains an obstacle. “Latin America is beginning in the securitization market. Everything is brand new and we need time to see what happens and how things develop. Complexity makes it hard to value spreads. Why should we buy a securitization with the same spread as a corporate bond and more complicated with embedded options that is not fairly valued?” says Jorge Unda, CIO at BBVA Asset Management. Issuers agree that for the moment, simplicity is the key. “We have to be clear about objectives. One has to be very neat, simple and sound. It is not easy, and sometimes it is hard to know if things were priced properly,” says Jerzy Skornya, senior finance manager at Mexico’s Infonavit. Covered bonds are one class generating optimism, despite Global Bank pulling what would have been the region’s first such deal earlier this month. “Covered bonds are coming when the time is right. In countries like Mexico there is need to expand the investor base to international markets and covered bonds is an instrument that would make it a little easier,” says Michael Morcom, head of LatAm agency and trust sales at Citi. “With growing interest from US international investors in local currency-denominated instruments, a covered bond with a payment profile that looks like a corporate bond makes it easy to hedge, and I do think the time is right for that,” he adds. With Latin America’s growing middle class and a need to provide to provide liquidity to the growing mortgage origination business and assure growth at an appropriate rate, covered bonds provide an attractive alternative to MBS given their outperformance during crisis periods. “Can we convince investors that this is a product that