Indian financial group ICICI Ltd has closed an Indian rupee, Rs4.65 billion (US$98.8 million), collateralized loan obligation (CLO). The transaction repackages some of ICICI's loan portfolio. It achieved a double-A-minus rating from two domestic rating agencies, including the Indian Credit Rating Agency.
The transaction was privately placed with a domestic investor, and had a coupon of about 11%.
The deal was structured so as to avoid additional stamp duty, and also to avoid registration and compliance procedures. This was achieved by means of a declaration of trust, whereby ICICI holds the security of the assets in trust for investors, but the investors receive beneficial interest on the securities. The deal still achieves a true sale. "This transaction was done to test the legal and regulatory framework of the market, and to meet investor requirements," says Praveen Mohanty of the structured products group at ICICI.
The financial group has already done a CLO, but this was secured on a single loan. "We are doing small transactions to make investors comfortable with this new class of securities," continues Mohanty. "And we have been working closely with the rating agencies in India, so that they can rate CLOs. All these deals test the legal and regulatory framework in this country, and going forward, we should be able to do a globally accepted CLO with multiple tranches. But right now the CLO market in India is almost non-existent."
However, changes to India's securitization legislation could increase the market. A bill detailing comprehensive securitization legislation is due to be presented to parliament, and the law should be enacted by the end of this year. It should address most issues relating to securitization including stamp duty, true sale and assignability.
"This should lead to an increase in issuance," says Mohanty. "In terms of automotive and consumer loans, the asset-backed security market has been growing at a steady pace. But only the first collateralized bond obligations and CLOs are being done, and the mortgage-backed security (MBS) market is at an early stage. After the law comes in, the biggest surge should be in the MBS market, and then other assets will follow."
Recent auto-loan transactions include the Rs630 million Ashok Leyland Finance, arranged by Citibank. The deal was put into Citibank's conduit, Peoples' Financial Services. The Indian power sector may use securitization for funding, as it needs to raise Rs800 billion over the next 10 years. The Indian Ministry of Power is said to be advising power utilities to securitize their delinquent receivables from state electricity boards, worth about Rs35 billion.