The International Finance Corp. expects to fund a landmark $65 million deal with Sri Lanka’s Commercial Bank of Ceylon (CBC) in early March, said an official at the multilateral.
The transaction is backed by diversified payment rights (DPRs), which are receivables linked to electronic money transfers processed by CBC. This would be first DPR-backed funding in South Asia, according to the official.
Unlike most other DPR deals, this particular deal will not include an SPV or paper that can be parceled out to market investors. The IFC is instead directly purchasing the receivables, the official said.
Also unusual for a DPR transaction, this deal has a single correspondent/depositary bank, which is Standard Chartered. The official said the funding included structural protections that address this lack of diversity.
The correspondent bank handles the payment orders on the other end from the DPR originator. For instance, a Sri Lankan abroad sending remittances home would use a Standard Chartered branch, which would then route the funds to CBC.
International counsel on the transaction is Gide Loyrette.
"The transaction...reflects IFC's goal to bring the long-term funding advantages of remittance/DPR securitization to institutions in developing markets that may not be within the rating guidelines or 'radar' of mainstream institutional investors who typically target institutions that already have a track record in this asset class," the IFC official said.
More DPRs in Asia?
Players in Asia see further opportunities for this asset class, which has a nearly spotless performance record through several financial crises in emerging markets over the past couple of decades. Kazakh DPR transactions are often held up as exemplifying the asset class’s resilience, having fully repaid investors under extreme financial duress.
“There has been interest in DPRs from other countries including Vietnam, the Philippines, Indonesia, Azerbaijan, and Pakistan to name a few,” said Stefan Hruschka, head of project administration for private sector capital markets at the Asian Development Bank. “In these countries legal and regulatory issues need to be explored before DPRs are possible. ADB would be keen to support transactions in those countries.”