IFMR closes India's first collateralised loan obligation

Chennai -based non-banking financial company (NBFC), IFMR Capital said it has closed the country's first Collateralised Loan Obligation (CLO) transaction after the issuance of Securitisation Guidelines in 2006.

IFMR Capital extended loans from its own balance sheet to four NBFCs with an outstanding amount of Rs 114 crore, and passed on the pooled loans to a domestic mutual fund investor through the securitisation route. This form of secondary sale is especially useful to provide capital market investors indirect exposure to a range of well-performing financial-inclusion-focused NBFCs. This is the second product structuring by IFMR Capital in FY18, after India’s first pooled loan issuance was closed in June, 2017. 

Collateralised loan obligations (CLOs) are a form of securitization where corporate loans are pooled together and are later passed on to different classes of investors in various tranches. In this instance, institutional loans, extended to the four NBFCs by IFMR Capital, were assigned to a special purpose vehicle (SPV). The SPV issued Pass-Through Certificates (PTCs) that were backed by receivables from these loans. The senior PTCs were subscribed by a reputed mutual fund.

Kshama Fernandes, chief executive officer of IFMR Capital said, “The CLO product can play a critical role in developing the secondary market for loans. It can help institutional lenders release limits, increase volumes financed and manage exposure to underlying entities. It can also act as a critical source of funding by providing liquidity through sell downs.”

The underlying loans of the latest transaction are diversified across NBFCs that operate in sectors like small business loans, fintech and micro finance. The four NBFCs are Annapurna Microfinance Pvt. Ltd, Zen Lefin Pvt. Ltd. (Capital Float), Essel Finance Business Loans Ltd and Home Credit India Finance Pvt Ltd, and have individual shares of 20-30 per cent in the overall loan pool. 

“From the investor’s point of view, they can take exposure to a basket of entities diversified across sectors and receive an attractive risk-adjusted return. The investors also benefit from the protection provided by the credit enhancement in the structure,” said Fernandes. “Even the entities, whose loans are getting securitised, get indirect access to a diverse investor base. The investors could potentially take direct exposure to the entities at a later point of time based on the performance of the underlying loans. The structure also creates more liquidity and appetite for their credit in the secondary market which in the long run will lower the liquidity premium," he added.

IFMR Capital, established in 2008, has raised over Rs 46,000 crore of debt for its clients till date. It connects high-quality NBFCs, catering to financially excluded households and businesses, such as microfinance, affordable housing finance, small business finance, agricultural finance, and vehicle finance with investors and lenders through debt capital markets.

IFMR Capital has pioneered several innovative structures in the Indian market, including the Multi-Originator Securitisation and is one of the leading arrangers in the securitisation market in India.