Prospects of infrastructure securitization in Russia

Securitization of infrastructure projects is very important type of financing at the present stage of society development. The quality and quantity of infrastructure projects are one of the main factors determining the level of the country's development, the quality of life of the population and the level of business activity and production. For many developed countries, securitization of financial assets has become the "engine" of economic growth. Attracted through securitization of huge funds in the form of securities secured by assets, they were sent to the real sector of the economy and became a powerful engine for accelerated economic development of these countries. In connection with this, securitization financing plays a key role in the economic development of the country.

So, infrastructure projects in the long run provide productivity growth, and in the short term - the growth of employment. Underdevelopment of infrastructure creates a risk of social dissatisfaction, which has a number of negative consequences for the development of the whole country. Securitization of assets provides mutual diversification for both investors and originators. The consequences of conducting securitization operations are mostly positive for the subjects of the economy. Negativity is mainly due to the complexity and significant financial costs of implementing a transaction for the securitization of its participants.

That is why we can expect the spread of this financial innovation in Russia, but only under the condition of proper legislative and tax regulation. In Russia, the securitization market is only just beginning. On December 18, 2013, the Federation Council approved the federal Securitization law No. 249606-5 on amending certain legislative acts of the Russian Federation, which enacted important legislative novels, in particular:

• -    Norms governing the securitization of assets of various types;

• -    The rule of opening and performing transactions on a nominal account and an escrow account; new rules for the implementation of notarial activities, including procedures for registration of pledges of movable property.

This event gave impetus to the faster development of this type of financing, it became attractive to investors, since it began to have a legal basis, began to be regulated by law.

In order to ensure a stable economic growth in the living standard of the population, it is necessary to implement infrastructure projects, which in turn requires investment. Securitization as a form of financing opens the possibility of direct access to financial resources on a long-term basis. If we talk about the future securitization market in Russia, then, in its opinion, it has all chances for successful development. My opinion is due to three main factors:

• 1)    the development of the Russian legal framework, the adoption of the Securitization Law. The new law on securitization opens new opportunities for securitization of loans to small and medium-sized businesses;

• 2)    the needs of the organizers of infrastructure projects in financing, without affecting the balance sheet items, thereby not worsening their financial situation;

• 3)    development of the investor base, first of all, non-state pension funds. Reforming the industry has reduced the participation of NPFs as investors, but according to official sources it is expected that the next years will be critical.

However, despite the above factors, which can contribute to the active development of the securitization market in Russia, there are certain difficulties that are standard for securitization of any type of asset: the lack of data in IT systems, the practice of selective application of underwriting criteria, a short period of time limiting accessibility information on the loan portfolio.

Prospects for infrastructure securitization in Russia are also limited, first of all, by an elementary number of projects where securitization would be possible.

The reasons for this are the following:

• 1)    Most infrastructure companies have an investment rating and it is easier for them to borrow directly.

• 2)    Many medium-sized infrastructure projects cannot afford securitization because of efficiency: large expenditures on a small amount of output.

• 3)    The third factor is the complexity of contractual designs in project financing, in which the allocation of collateral or the procedure for handing over the service when the borrower defaults have high risks.

Therefore, it is too early to talk about infrastructural securitization as a mass phenomenon: there are projects, but their evaluation and approval are carried out on an individual basis: the sponsor financing the release costs needs to understand the source of cost recovery.

Moreover, for a sponsor that finances the cost of production, it is necessary to understand the source of cost recovery. Unfortunately, this source is not always obvious: the circle of investors and the rate is not clear. For infrastructure securitization this issue is more acute.

The state has the opportunity to support securitization of infrastructure projects through the mechanism of state guarantees for bonds or to send funds of state funds to this type of projects. It should be understood that the guarantee in 99% of cases will not bring losses to the state - the project is structured so that the risk of default corresponds to investment grade securities. The problem in investors' distrust of complex issues is that the guarantee can help investors obtain the approval of credit committees to purchase the issue. The subsequent issues will go easier, because there will be history and benchmarks.

It should be noted that after the release of the law on securitization, support from the state actually decreased by half: the Pension Fund of the Russian Federation withdrew from the bond market. Non-participation of the Pension Fund is replaced by non-state pension funds.

Also, we should take into account foreign policy factors, which also have a negative impact on the development of all the country's markets, including the securitization market. Uncertainty in the development of the country's economy affects the activity of investors, both foreign and Russian.

• •    worsening of the financial system;

• •    Reduction of reserves;

• •    increasing access to credit resources, undermining prospects for economic recovery;

• •    weakening of the ruble, which hit the incomes of the population;

• •    net outflow of capital;

• •    poor quality of institutions and public administration.

Such a decline in the rating had a very negative impact on the securitization market in Russia.

If we talk about what can be done to attract institutional and private investors, then according to Kaduk Sergey (DCM director of Sberbank CIB), in the organizational plan nothing to do is not necessary. Investors have every opportunity to invest regardless of citizenship. Investors are qualified enough to understand the product. Disclosure of information on secured securities, the quality of information is good.

As the experience of securitization of assets accumulates, the market will evolve by itself, if the vector of the country's development and its economic policy are understandable.

The use of securitization to attract financing for infrastructure projects has several advantages over other possibilities: securitization has "proved" to be effective as a tool to attract financing to inconvenient industries (such as infrastructure), such as aircraft leasing;

• -    due to their features, combining signs of debt and equity financing, securitization could help in attracting such large financial resources as Islamic sovereign funds, which are difficult to attract traditional methods of debt financing;

• -    with the help of securitization, it is possible to organize attraction of funds in an unconventional way, in particular using catastrophic bonds, which will be treated as an insurance operation, and therefore will not increase the burden on the state budget.

Thus, securitization of assets is a complex but highly effective financial mechanism. In particular, securitization of assets allows the business entity to simultaneously streamline existing assets, improve its own indicators and obtain a long-term financial resource on much better terms. prospects for the development of the securitization market mainly depend on the political activities of our country, on its economic development, as well as on the possibility of supporting projects by the state.

With the aim to develop the use of securitization of infrastructure projects in Russia, there are several prerequisites: the Russian economy suffers from a shortage and obsolescence of infrastructure facilities, which is a powerful deterrent to economic growth;

• -    investment in infrastructure is not possible without the participation of the state, including in the role of an investor;

• -    the volume of required investments, limited state resources, plans to attract private investors, and tight deadlines, in which it is necessary to fill the existing infrastructure deficit, make it especially necessary to have an effective mechanism for refinancing investments;

• -    Securitization allows, due to the multiplicative effect, the expansion of the list of projects that will be achieved in a shorter period;

• -    the use of securitization will help create a new instrument for "risk-free" investment - a state-owned, asset-backed, bond with a sufficient long maturity.

Qualitative and effective approaches to the organization of the securitization market for infrastructure projects can create incentives for the effective development of infrastructure construction in Russia, which can be a decisive factor on the way of economic development of our country for the coming decades.