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El Salvador: Capital Market Development

Thursday, May 30, 2013

In a country with limited alternative sources of financing, the Securitization Act has been successful in matching borrowers with investors.

In the largest ever issue of a fund of this type, the Road Maintenance Fund, part of the Salvadoran government, hopes to raise $100 million by the end of this month.

The value of funds raised by this concept has grown rapidly since the Act came into force in 2008.

The creditors most active during this period include several municipalities, which use the program to invest in projects quickly, instead of waiting up to a year before receiving revenue sharing payments from the central government.

Private entities have also taken advantage of the option of securitization, which includes a $55 million issue a few months ago for a hotel project, along with several education projects.

In order to benefit from the option of securitization, the issuer must obtain prior approval from the Stock Exchange and the Financial System Superintendent, in addition to a number of risk qualification requirements, among others. The trading of securities is done through the same group, charging a fee for their services.

On the other hand, the interest rate which a borrower pays to the issuer of a securitized bond can be as little as half the cost of a bank loan.

There is ample scope for growth of securitization, especially given that the two main Salvadoran pension funds have $6 billion, which they always need to invest.

For more information, please contact Oscar Samour in [email protected], or 503 2209-1600.