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28 Sep 2021, 10:00 HRS IST
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Source:IFMR Trust (Institute for Financial Management & Research)
Category:Business and Finance
CRISIL Upgrades Ratings of First Microfinance PTCs
27/10/2009

MUMBAI, Oct. 27 /PRNewswire-AsiaNet/ -


    Following the first rated securitisation of micro-loans
in India, the pass-through certificates (PTCs or securities) from the
transaction have received a rating upgrade from CRISIL. The ratings of the
senior and junior tranches of PTCs have been upgraded to AAA (so) and A (so),
from their original ratings of AA (so) and BBB (so) respectively.

    The transaction, which was concluded by IFMR Capital in
March 2009, involved securitisation of micro-loan portfolio of Rs 157 million
(principal outstanding) originated by Equitas Micro Finance India Pvt Ltd.
The upgrade is based on the performance of the pool, the timeliness of
payments to the SPV and the extent of credit enhancement in relation to the
outstanding cash flows on the pool.

    Capital Structure of Securitisation

    
    PTC     Yield  Principal Principal Principal   Legal    Expected Upgraded
            Terms    (Rs mn)   % (At   Outstanding Final    Maturity Rating
                               issue)    (Rs mn)   Maturity Date
                                                   Date

    Series
     A1     Fixed     125.4       80%      59.0    22 Oct   07 May   AAA (so)
                                                            2010     2010

    Series
     A2     Residual   31.3       20%      31.3    22 Oct   22 Oct   A (so)
                                                            2010     2010

    Cash      
     Collateral        18.3     11.7%      18.3                      Unrated
                             of Issue
                              Size of
                                 PTCs


     As on 22 October 2009. Source: Report from IDBI
Trusteeship Services Pvt Ltd (Trustee for SPV)

    IFMR Capital, the sole structurer and arranger, has
provided second loss credit enhancement in the form of an investment in 100%
of the Series A2 securities and the Series A1 securities have been fully
underwritten by a bank investor.

    For credit enhancement, Equitas had provided a first
loss facility in the form of cash collateral equal to 11.7% of the original
principal amount of the portfolio. This cash collateral together with the
excess interest spread (EIS) being trapped in the SPV are used to cover any
shortfall in repayments on both tranches of securities. The cash collateral
is intact since the beginning of the transaction, and the EIS has built up to
an amount of Rs 13.4 million as on 07 October 2009.

    The upgrade in the ratings marks a reiteration of the
effective origination capabilities of Equitas, backed by its strong systems
and processes for management of micro-loan portfolios.

    IFMR Capital, which structured and invested in the
landmark transaction with Equitas, is promoting microfinance loans originated
by high-quality MFIs as an attractive asset class for a new category of
securities in the ABS market. The securitisation structure pioneered by IFMR
Capital in India is expected to open up new sources of debt capital such as
mutual funds, insurance companies, NBFCs and foreign banks, for the
microfinance industry.

    Banks are also expressing interest in rated
microfinance paper due to their liquidity and also due to the expected
adoption of Basel-II capital adequacy norms, which favour rated assets as
against unrated assets on the books of banks.

    "The ratings upgrade strengthens our confidence in
microfinance as a promising new asset class for debt and equity investors
across the globe. The upgrade by three notches together, reflects the
strength of the underlying assets. This puts microfinance firmly on the map
of mainstream capital markets," said Sucharita Mukherjee, CEO, IFMR Capital.

    "Equitas'' unique set of processes and MIS systems have
helped demonstrate the quality of our portfolio and our originating
capabilities. With this rating upgrade, Equitas is now more confident of
accessing the full range of capital market instruments. In the medium term,
this development will usher in wider capital access for the entire
microfinance sector as well," according to S. Bhaskar, COO, Equitas.

    According to Mr.Ajay Dwivedi, Director-Structured
Finance Ratings, CRISIL, "The rating upgrades reflect the increased cover
that the transaction's credit enhancement provides to the PTCs as a result of
the strong collection. Continued strong collection performance in the
transaction could lead to a further upward movement in the rating for the
Series A2 PTCs."

    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, agri-commodity backed financing
and low-income housing finance.

    IFMR Capital will develop smooth and efficient access
to capital markets by creating transparent & robust underwriting standards
and evaluation frameworks for 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 (Pvt) 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 98 branches with portfolio outstanding of
Rs 4,304.7 million as on September 30, 2009, and net worth of Rs 1,315.4
million as on the same date. Equitas currently serves more than 600,000
households across Tamil Nadu, Maharashtra and Andhra Pradesh. Equitas has
received a credit rating of BBB- with 'Stable' outlook from CRISIL in July
2009, on a proposal for long-term borrowings of Rs 5.0 billion. Also, Equitas
has obtained an mfR3 grading from CRISIL.
    
    For press queries, please contact:

    Susmitha Chakkungal ( susmitha.chakkungal@ifmrtrust.co.in)
    +91-90-0306-2231

    SOURCE: IFMR Trust (Institute for Financial Management & Research) 
CONTACT:
Susmitha Chakkungal ( susmitha.chakkungal@ifmrtrust.co.in) +91-90-0306-2231
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