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. Last Updated: 07/27/2016

Mortgage Agency to Sell Bonds

State-owned mortgage agency AIZhK plans to sell the nation's second ruble-denominated bonds backed by mortgages.

AIZhK, which was set up by the government to help develop the country's mortgage industry, will sell 3.5 billion rubles ($135 million) of the bonds in May and 10 billion rubles of the debt in September, president Alexander Semenyak said at a presentation Friday.

Russia only last year past passed laws enabling banks to sell bonds secured by assets such as mortgages. Gapzrombank, the lending arm of state-owned Gazprom, sold ruble- denominated bonds backed by home loans last year. Several lenders, including VTB, the nation's second-largest bank, have sold foreign bonds backed by mortgages.

"The local market for securitizations is still very much underdeveloped," said Mikhail Galkin, an analyst at MDM Bank.

"Local investors are not used to buying complicated bond structures. Even with high credit ratings, the issuer may have to pay a premium over what should be considered fair yield levels in order to sell the bonds."

Banks create residential mortgage-backed securities by pooling home loans and selling them to investors as notes.

Banks issue the bonds to raise capital more cheaply than they could through unsecured debt.

More Russian lenders are likely to sell mortgage-backed bonds on the domestic market this year as the sector grows, said Alexei Bulgakov, an analyst at Aton Capital Group.

The bonds will interest Russian pension funds and insurance firms, he said.

The domestic mortgage market is set to almost double to at least $17 billion this year as growing wealth among the country's 141 million people drives demand for better housing and banks offer cheaper loans, Alfa Bank said last month.

Moscow-based AIZhK has 48.6 billion rubles in mortgages outstanding.