IFMR Capital and Equitas Conclude First-Ever Rated Securitisation of Micro Loans
in India
MUMBAI, Mar. 9 /PRNewswire-AsiaNet/ -
In a path breaking deal in the micro-finance sector, IFMR Capital and
Equitas Micro Finance India Pvt Ltd (Equitas) have completed the first rated
micro loan pool backed securitisation with a principal amount of pass-through
certificates (PTCs or securities) equal to Rs. 157 million. The underlying
loan portfolio comprises priority sector urban micro loans originated by
Equitas with final maturity in October 2010. IFMR Capital structured and
arranged the innovative securitisation transaction after a comprehensive
analysis of Equitas and the loan portfolio, based on its underwriting
guidelines.
Capital Structure of Securitisation
PTC Yield Principal Principal % Expected Legal Rating
Terms Maturity Final
(Rs. mn) (Months) Maturity
(Months)
Series A1 Fixed 125.4 80% 14 20 AA(so)
Series A2 Residual 31.3 20% 20 20 BBB(so)
Cash 18.3 11.7% of n/a 20 Unrated
Collateral issue size
of PTCs
CRISIL has rated the Series A1 and Series A2 pass through certificates,
AA(so) and BBB(so), respectively. The PTCs will be issued by a special
purpose vehicle, IFMR Trust Pioneer I ( SPV), set up specifically for the
purpose of this securitisation. The securities are backed by microfinance
loan receivables originated by Equitas. IFMR Capital, the sole structurer and
arranger, provides mezzanine financing in the form of an investment in 100%
of the BBB(so) rated Series A2 securities, while, the AA(so) rated securities
have been fully underwritten by a bank investor..
For credit enhancement, Equitas provided a first loss facility in the
form of cash collateral equal to 11.7% of the principal amount of the
portfolio. This cash collateral together with the excess interest spread
being trapped in the SPV are used to cover any shortfall in repayments on the
AA(so) and BBB (so) securities. The investors in the AA (so) rated Series A1
PTCs are further protected by the junior BBB (so) rated Series A2 PTCs, which
comprise 20% of the issue size.
This transaction is structured such that the interests of all parties:
the originator, Equitas, the structurer and mezzanine finance provider, IFMR
Capital and the senior bank investor are aligned to incentivise good due
diligence and performance of the underlying micro-loan portfolio.
While unrated microloan portfolio buyouts have been a common source of
financing for some MFIs, this landmark transaction represents the first rated
securitisation of microfinance loans in India. This transaction is expected
to open-up new sources of debt capital such as mutual funds, foreign banks
and NBFCs, for microfinance institutions.
The senior AA(so) rated series A1 PTCs has evinced strong interest from
domestic banks, which find this security attractive from a risk return
perspective. Moreover, with the advent of the new Basel -2 capital adequacy
regime in 2010, we believe banks will find more and more value in these rated
micro-loan securitised PTCs.
"The deal is in tune with IFMR Capital's goal of "creating valuable new
asset classes, increasing marketability of asset classes to a broader
universe of investors and expanding access to capital for micro-finance
institutions," said Sucharita Mukherjee, Senior Vice President, IFMR Trust
and CEO, IFMR Capital.
"This will be the blueprint for further securitisations and a benchmark
for other MFIs," she added.
On this occasion, S. Bhaskar, COO, Equitas said "This rated
securitization transaction will help Equitas diversify its sources of funding
and enable Equitas to offer micro-credit at reduced cost to a larger section
of the population."
About IFMR Capital
IFMR Capital is a non-banking finance company based in Chennai, whose
mission is to provide efficient and reliable access to capital for
institutions that impact poor households. IFMR Capital acts as a bridge to
mainstream capital markets for under-served sectors such as microfinance
institutions, small and medium enterprises and agri-commodity backed
financing.
IFMR Capital will develop smooth and efficient access to capital markets
by creating transparent criteria for evaluation of these new asset classes,
standardizing investment structures, and using financial structuring tools to
generate high quality assets leading to price discovery, liquidity and growth
in these new markets. This will enable institutions in critically important
sectors to reach out to new sets of investors thereby expanding the sources
of capital available to them.
About Equitas
Equitas Micro Finance India (P) Ltd aims to extend micro
credit to people who are otherwise unable to access finance from the
mainstream banking channels. Equitas commenced business in December 2007 with
the objective of making available finance at reasonable cost and in a
transparent manner to women who are engaged in micro enterprise activities.
Equitas has 65 branches with portfolio outstanding of Rs.1,850.7 million
as on December 31, 2008, and net worth of Rs.630.2 million as on September
30, 2008. In the first year of operations, Equitas has crossed 300,000
clients and received an mfR3 grading from Crisil; the highest for a
microfinance company in its first year of operations.
For press queries, please contact:
Anand Sahasranaman (anand.s@ifmrtrust.co.in)
+91 44 43051524
+91 9790965026
Source: IFMR Capital
NEWS 
