CRISIL upgrades ratings of first micro finance PTCs
Following the first rated securitisation of micro-loans in India, the passthrough 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
Terms |
Principal
(Rs mn) |
Principal
%
(At
issue) |
Principal
Outstanding
(Rs mn) |
Legal
Final
Maturity
Date |
Expected
Maturity
Date |
Upgraded
Rating |
| Series A1 |
Fixed |
125.4 |
80% |
59.0 |
22 Oct
2010 |
07 May
2010 |
AAA (so) |
| Series A2 |
Residual |
31.3 |
20% |
31.3 |
22 Oct
2010 |
22 Oct
2010 |
A (so) |
| Cash
Collateral |
|
18.3 |
11.7% of
Issue Size
of PTCs |
18.3 |
|
|
Unrated |
| 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 withm Equitas, is promoting micro finance 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 micro finance industry.
Banks are also expressing interest in rated micro finance 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 micro finance 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 micro finance 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 micro finance 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 underserved sectors such as micro finance 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
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