The International Finance Corporation is likely going to increase its use of fixed income derivatives because it is ramping up its securitization activity. Arun Sherma, head of structured finance at the IFC, said the IFC uses fixed income derivative products such as interest-rate swaps, currency swaps and basis swaps to help structure securitizations, and that, with the increase in securitizations, there will probably also be an increase in hedging with derivatives.
The group has already closed six deals this year, with typical sizes of USD50-100 million. Its pace of securitization should grow rapidly as it adds up to three securitization professionals by May 15. The hires will bring headcount in the group to seven.
Interest rate derivatives marketers in the U.S. noted that demand for interest-rate derivatives to help structure asset-backed securities has grown steadily over the last several years. Investors are interested in ABS as a means of gaining broad credit exposure in one fell swoop, which is particularly important now, when credit quality is generally deteriorating.
Sherma noted that the IFC is seeing this interest. Since the Asian crisis and the recent credit difficulties in Latin American markets such as Argentina and Brazil, investors and lenders have increased their demand for emerging market credits via asset-backed deals.
The securitization professionals would be responsible for structuring emerging market asset-backed deals in a variety of asset classes including leases, mortgages, trade receivables and auto loans. Sherma said that over-the-counter derivatives are typically used in these deals.
A member of the World Bank Group, the IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world.
