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Investors raise concerns on LatAm structured finance 0

May 17, 2013

The long-awaited deepening of Latin America’s structured finance markets will require greater involvement from multilateral institutions in extending guarantees and the introduction of international best practice, investors have said.

Some institutional investors lack familiarity with the format of deals from the region, issuers and investors said at the LatinFinance Securitization and Structured Finance in Latin America conference this week. Given the small size of many deals, it can be tough getting investors interested enough to do credit work.

  Traditional financing for construction was from banks - institutions that can  understand, evaluate and price the risk, tasks that are more difficult for bond investors, Mike Morcom, director, head of Latin American agency & trust sales, Citi, told LatinFinance. "One of the challenges for deals with construction risk is finding sufficient investor appetite.

  "It's an education process. Institutional investors, the buyer base in the US, they've come up to speed on other asset classes. At some point they do get to understand and are able to price that kind of risk," he said.

  Morcom added that while deals have been completed with "varying degrees" of construction risk, "we need the investor base to be more knowledgeable in able to price that risk as it will allow more project bonds to get done."

  John Rauschkolb, CEO of Panama-based mortgage lender La Hipotecaria told the conference that guarantees from multilaterals helped international investors get comfortable on buying well rated, but small, securitizations from his institution.

  "To get somebody from New York to understand what a Salvadorean mortgage is all about is a challenge," he said.

  Credit guarantees allowed US investors to become comfortable on transactions without putting in extensive credit work for a small deal size, he said.

  Stephen Martin, operations director at investment firm Absalon, meanwhile, said home lenders in Mexico and Brazil should consider the principals behind the Danish covered bond model. These included a regulated process to review operations, a liquid secondary market.

  The comments came amid a backdrop of renewed optimism for the market – and with new deals in the pipeline.

 As LatinFinance reported, Corporacopm Andina de Fomento is working on a collateralized debt vehicle, while in Brazil the market for agribusiness securitization is expected to increase markedly this year, attracting new structurers.

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Complexity, unfamiliarity, barriers to deeper LatAm structured finance market


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