Dewans Spv Is Rated Higher Than Parent

The special purpose vehicle of Dewan Housing Finance has got a better rating than the parent itself.

Dewan Housing's Rs 55 crore mortgage-backed security (MBS), which will be entering the market next week, has been rated triple A (AAA) by the three rating agencies: Crisil, Care and Fitch, said Dewan Housing managing director Kapil Wadhawan.

On the other hand, Dewan Housing's fixed deposit programme has been given a double A (AA) rating by the same agencies.

Since Housing Development Finance Corporation (HDFC) launched its MBS in May this year, the market has become wiser.

The market today has understood the concept of how MBS are really a pool of cherry-picked loans, which have a credit enhancement to take care of any possible eventualities and at the same time, are backed by the parent itself.

 

Dewan Housing whose five-year MBS issue of Rs 55 crore is expected to open next week, has an average pool of assets of 5.38 year tenor, with a credit enhancement. The coupon benchmark rate for Dewan Housing's forthcoming MBS issue is expected at around 8.7 per cent annualised, against the housing finance company's present fixed deposit rate of 8.5 to 9 per cent.

In contrast, when HDFC offered its MBS issue at a coupon rate of 9.05 per cent, interest rate on its fixed deposits ranged far lower between 7.8 to 8.3 per cent. Incidentally, HDFC and its MBS were rated AAA by rating agencies. After HDFC, Canfin Homes offered its MBS issue at 9.16 per cent and ICICI Bank at nine per cent a month back.

Admittedly Dewan Housing's ability to raise money through this structured obligation route at a lower coupon rate is also a reflection of the dip in yields on government securities and correspondingly corporate paper since May.

Said Wadhawan: "There is a 75 to 100 basis point mark up against five-year paper in the G-sec market". As more and more players opt to fund their requirements through off-sheet balancing in the form of MBS issues, the cost of funds are expected to decline.

"A major advantage of this off balance sheet funding results in us not having to keep a high capital adequacy ratio as our business grows. It also gives us a longer-term funding solution of over seven years, as compared with fixed deposits," said Wadhawan.