The project sponsor is Vneshtorgbank (“VTB”), which has originated the pool of mortgages that is to be securitized. VTB is owned primarily by the Russian government. VTB has announced its plans for an initial public offering of an up to 25% stake in London and Moscow. The aim is to sell the shares as early as November, 2006, or the first quarter of 2007 at the latest. VTB is the second-largest bank in Russia and one of the few banks with sufficiently large mortgage portfolios to warrant securitization.

Total debt issuance by the SPV is expected to be up to $100 million face value, and IFC’s investment likely to be up to $25 million (subject to project structuring). The project therefore represents $100 million in mortgage loans (principal outstanding) at the time of completion. IFC’s investment will consist of the purchase of mezzanine-level notes for its own account. IFC may also provide certain liquidity related credit enhancements for the benefit of investors.

35.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee	17.0
Loan	18.0
Equity

* These investment figures are indicative

The project will consist of residential mortgage loans to individuals for the purchase of residential property in Moscow, St. Petersburg, and the surrounding regions (Moscow and Leningrad Oblasts).

The creation of a proven refinancing mechanism is expected to be a critical factor in developing a sustainable mortgage finance cycle throughout the Russian Federation. This project is also expected to reinforce the private-sector mortgage industry based on best-practice mortgage origination criteria. By demonstrating the attractiveness of Russian mortgage sector assets, it will encourage development of refinancing mechanisms based on increasing the liquidity of mortgage pools by converting like assets into tradable securities. The structure is believed to be replicable by other institutions, and should increase the level of competition on the mortgage market (both primary and secondary). The structure may also be appropriate for securitization of other assets such as leases, consumer loans, small business loans, and the like. IFC’s role is to provide credit support to receive the required rating, and to participate in structuring the transaction. As one of the largest providers of finance for mortgage lending in Russia, IFC is well placed to evaluate the quality of the underlying mortgages. IFC has also supported the development of the legal infrastructure for securitization in Russia, including participating in a Working Group reporting to the State Duma; in 2004, IFC published a report (available on IFC’s web site) entitled “Securitization in Russia” with specific recommendations and changes needed for securitization. IFC also runs the Russia Primary Mortgage Market Project, which works with Russian banks to develop the standards and procedures needed for increased mortgage lending.

Based on the available information, this is a Category C project according to IFC''s environmental and social review procedure. The nature of VTB''s portfolio (residential mortgages) means that there will be minimal environmental impacts associated with this investment. Therefore, no further environmental or social analysis is required.
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