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Securitization markets in Argentina
This page updated regularly deals with securitization developments in Argentina. If you have any news or development to contribute to this, please write to me.
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Late breaking additions:
Added 19 July, 2000
This page was updated in light of Standard and Poor's
comments in Structured Finance July 2000.
Added 11 July, 2000
This page was revised comprehensively.
Added 21st March, 2000
Banco Hipotecario
is coming out with the largest MBS issue out of Latin America backed by
political risk cover -click
here.
Bank Hipetecaria is joining hands with IFC Washington to promote a Fannie-Mae type body for Argentina. Click here for a news item.
Among Latin American markets, Argentina takes a lead: both in terms of the maturity of the market, depth and width of transactions and a generally well-defined legal system that permits and promotes securitisation. The Government's policies have generally been receptive.
State of the market:
Large market, but untapped potential
Standard and Poor [Standard and Poor's Securitisation in Latin America, 1998] estimated securitisation offerings in Aregentina to be around USD 4 billion over 1995-97. Standard and Poor notes: "Among the factors that contributed to the development of securitization were Argentina’s return to economic stability and growth, an adequate legal and regulatory framework, and the growth of an institutional investor base." According to a Fitch IBCA report on Latin America, "Argentina is ahead of its neighbors in Latin America with respect to a mortgage-backed securities market. There exists a sound legal framework for securitization, standardized mortgage loan documentation, and high-quality, experienced servicing operations." The passage of the Trust Law in 1995 (discussed below) has been an important contributor to the growth of securitisation markets in Argentina.
Standard and Poor's special report titled Securitization in Latin America July 2000 issue of Structured Finance comments as under: "Nevertheless, market players agree that securitization has not reached its potential, especially for existing asset-backed transactions. Of the 10 largest private financial insti-tutions, which hold over US$13 billion in mortgages, auto loans, and personal loans, only two have securitized their own assets."
On the mortgage loans front, the Argentina market is characterised by large market share in mortgage loans with just one bank: Banco Hipotecario Nacional (BHN). With a permissive environment being laid out by changes in securities and banking laws (discussed below), BHN completed the country’s first two securitizations in 1997. The first was a US$93 million issue with a 76:24 blend of variable rate and fixed rate mortgage respectively. The second issue was US$106 million with at 47:53 blend of variable and fixed rate mortgages. The senior securities achieved an investment grade rating in the US (higher than the Argentine sovereign rating at the time of issue) through the use of senior subordination and reserve funds for credit enhancement. It is anticipated that BHN will continue to securitize thus increasing the availability of funds in the mortgage market.
There have been some securitisation deals in export receivables as well - YPF Sociedad Anonima has closed some issues relating to export receivables for sale of oil to Chile.
Oil royalties have also been securitised by one of the State governments.
In 1998, there were 4 international securitisation deals from Argentina: Banco Mayo's personal loans, Oil Enterprises future oil sales, a third deal of coparticipation tax revenue receivables, and lastly a credit card receivables securitisation. Domestically, there were about a dozen transactions.
In 1999, however, Argentina passed through a severe recession.and a long and unstable political process, thus slowing economic activity. Inspite of this, there were some innovative transactions in 1999. In December 1999, ABN AMRO issued a transaction backed by deferred checks, the Chess Trust Series BPI Cheques Bansud S.A. issued its first auto loan transaction in 1999.
An interesting feature of Argentina's securitisation classes is the pooling of State's share in co-participation tax revenues. These payments are on account of Federally collected, but shared tax revenues.
Securitisation law:
For full text of the Trusts Law, refer to our Securitisation law page.
In view of the growing investor interest in securitisation transactions, the Argentine Government adopted in 1995 a law on securitisation transactions. The law [24.441 law], actually a trust law, adopted on January 9, 1995 contains comprehensive provisions relating to securitisation transactions and delegates to the National Securities Commission (CNV) power of regulation of securitisation transactions. The necessary regulations have been framed by CNV vide its Resolution 271 of Sept., 1995.
The securitisation trust is taken as a "financial trust". In case of a financial trust, the trustee will be a financial institution or entity authorised by the CNV. The trust can issue wide ranging variety of securities, including registered or bearer securities, securities of different classes, securities of different series, etc. Shelf registration is also permitted for these securities.
The securitisation law allows the creation of two different types of securitisation structures. In the first case, the pool of securities is held by an SPV which in turn issues certificates of participation including debt securities, backed by underlying receivables. In alternative form, a third party buys the entire pool of receivables and places them in a trust, which can be used as collaterals for debt securities issued and guaranteed by the buying party.
CNV regulations impose certain requirements on the appointment of trustees for the SPV. There are certain minimum capital requirements also in order to be appointed as a trustee.
Tax treatment of securitisation:
Asset-backed securities are given same preferential tax treatment as 'negotiable obligations'. Such obligations are exempt from value added tax upon their transfer. Interest withholding tax and income and capital gains tax are also not applicable to such gains, except in case of securities held by individuals.
This preferential tax treatment will only be applicable to public offers of securities registered with CNV.
Taxation of the SPV:
Securitization SPVs registered as financial trusts also get a preferential tax treatment not applicable to corporations. A specific legislation grants this preferential tax status to financial trusts, thus minimising the burden of double taxation on the securitization transactions.
The tax incentives applicable to financial trusts are as follows:
- Withholding tax on interest payments to non residents is exempted.
- Profit distributions paid with respect to a financial trust's certificates of participation are not subject to this withholding tax.
- Minimum Presumed Income Tax (MPIT) is potentially reduced. MPIT is a tax calculated at 1% of the taxpayer's assets and is payable in a given year only to the extent that the taxpayer's MPIT liability exceeds its regular corporate income tax liability.
- Interest payments made by a qualified financial trust with respect to its debt bonds are not subject to value-added tax (VAT) as long as the bonds are publicly registered.
- Generally qualified financial trusts are not subject to specific rules regarding appropriate debt-toequity ratios, which apply to normal corporations.
There are certain irritants like stamp tax imposed by certain provinces, other provincial taxes, etc.
Future challenges:
Standard and Poor's in their special report published in July 2000 issue of Structured Finance had the following to say on future prospects of Argentinan securitisation:
"The Argentine structured market has benefited from deep eco-nomic reforms introduced in the last decade, a supportive legal and regulatory framework for securitization, and a strong local institutional investor base. However, several factors have pre-vented securitization from further developing, including the following:
- Future flow securitizations, while reducing sovereign risk, do not eliminate corporate risk, and only highly creditworthy companies can typically benefit from this type of financing.
- Banks with sizable asset portfolios still hold excess capital relative to regulations in force, and therefore do not need to sell assets to improve capital needs.
- Lending banks are reluctant to share information with other banks (who may act as trustee) about their customers.
- The financial system appears unwilling to support the development of third-party trustees.
- Financial crises have stunted asset origination growth."