The Asian Development Bank (ADB) has provided a credit guarantee for US$100mn of notes to help develop Kazakhstan’s securitisation market and enhance financing to small and medium enterprises (SMEs) in the country.
The guarantee will securitise JSC Alliance Bank’s (ALB) diversified payment rights (DPRs). DPR securitisation is recognized as an alternative source of long-term capital for banks.
Half of this guarantee will be reinsured by KfW, a German development bank, which finances investments and accompanying consulting services in developing countries on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ).
The entire issuance will consist of two series of notes – US$100mn guaranteed by ADB and up to US$100mn of unguaranteed notes.
“ADB is committed to the development of the securitisation market in Asia by way of providing credit guarantees,” says William Willms, an ADB principal investment officer.
“Following ADB’s initial steps into the Kazakh market in July, this guarantee aims to help promote development of the country’s capital markets. This is a template for other Asian banks when tapping into international markets. We are fortunate to work with KfW as a strong partner in this venture.”
The diversification of the Kazakh economy toward non-oil investments, particularly through the SME sector, is a crucial factor for Kazakhstan’s sustainable and inclusive economic development, especially after the oil boom recedes.
“KfW Bankengruppe has broad experience in securitisation transactions and with this transaction, it will use this knowledge to contribute to the development of Asia’s and especially of Kazakhstan”s securitisation market,” says Norbert Kloppenburg, KfW senior vice-president, Asia.
“An efficient securitisation market is important for improving refinancing to SMEs in the region. Thus, KfW development bank will be available as innovative and reliable partner in such transactions also in the future.”
ALB, the fourth largest commercial bank in Kazakhstan in terms of assets and shareholders “equity, is strategically committed to the SME and retail segment. In the coming years, ALB intends to substantially increase its SME loan portfolio and establish a leading position in the market, as the bank believes this sector represents one of the most important areas of growth in the Kazakh economy and banking system.
The project is the first DPR securitisation of a medium-sized private sector bank in the country, and is expected to help similar banks to access this type of funding.
Under the DPR process, a bank that wishes to raises funds sells its rights to all present and future DPRs to an offshore special purpose vehicle. The SPV transfers its rights to the cashflows to an offshore trust, and then issues debt securities (notes) backed by the future cashflows. The sale proceeds from the notes are then transferred from the SPV to the originating bank.