India's securitization market is still in its infancy, but holds much potential for international issuance, said Duff & Phelps in a recent report.
All securitizations in India so far have used onshore assets and been sold domestically. However, DCR anticipates that future flows will become an attractive financing option for strong corporates with sufficiently large export volume, and could appear as soon as next year, said Amit Agarwala, assistant vice president in the agency's Hong Kong office.
India already has some key legal elements necessary for securitization, such as a common law system mainly derived from English law and wide acceptance of the concepts of true sale and bankruptcy remoteness.
On the other hand, substantial hurdles remain. The registration of ownership on underlying assets and the legal nature of SPVs are currently unclear. Tax issues and lack of accounting standards also need to be addressed. For international issuance, the absence of a liquid swap market largely thanks to the rupee's only partial convertibility would restrict dollar-funded, existing asset transactions, noted the agency.
Still, one promising area is the potential for structured transactions such as future flows, preferred-creditor transactions, and political risk-guaranteed transactions, all of which have been used before in Latin America.
Such transactions could allow Indian issuers to attain investment-grade ratings, though India's credit rating is not investment grade.
For example, the Overseas Private Investment Corporation's (Opic) political risk insurance (see related story on page 12) would be ideal for Indian issuers, since it would allow them to issue bonds rated close to their local currency ratings, even if their foreign currency ratings are sub-investment grade, the agency noted.
"For those issuers who want to go up to the sovereign currency ceiling, Opic is exactly the right answer," Agarwala said.