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Part - IV

In the Indian context, there has been moderate amount of activity on the Auto Loan securitization front. Companies like TELCO, Ashok Leyland Finance, Kotak Mahindra and Magma Leasing have been securitizing their portfolio of auto loans to buyers like ICICI and Citibank over the past 2-3 years, with several of the recent transactions rated by rating agencies like CRISIL and ICRA. While many of the deals are bilateral portfolio buyouts, ICICI has used the SPV structure * and placed the issuance privately to corporate investors and banks.

In April last year, Global Tele-Systems Ltd. raised approximately USD 32 million by securitizing the future receivables of its consumer telecom business to an SPV named Integrated Call Management Centre. Tata Finance was the sole investor in the passthrough certificates issued by the SPV.

One of the first publicized structured finance transactions in India was the Rs. 4.09 billion non convertible debenture program by India Infrastructure Developers Ltd (IIDL), an SPV set up for building and operating a 90 MW captive co-generation power plant for IPCL (March, 1999). IIDL raised finances on the BOLT (Build Operate Lease Transfer) model on the strength of its future cash flows from IPCL and limited support from L&T. The transaction was rated AA- (SO) by CRISIL.

ICICI has done several bilateral asset backed securitization deals including securitizing DOT (Department of Telegraph) receivables from Sterlite Industries and Usha Beltron.

While the activity in the ABS market is picking up in India, the number of investors for securitized paper is very limited. In the absence of a Securitization Act, there are taxation and legal uncertainties with the securitization vehicle. In India, transfer of secured assets as required for securitization, can attract a stamp duty as high as 10% in some states precluding transaction possibilities. With favorable legislation and taxation regime, the ABS market in India can hope to see a lot of activity in future.

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* A revocable trust (SPV) purchases assets from the Originator and issues Pay Through Certificates to investors.

Written by V. Sridhar, PGP 2002, IIM Calcutta.
Contributed by Varun Goenka, Diploma in Business Finance Economics, ICFAI.