Citi Scores A First With Securitised Debt Issue

Citibank India has kicked off trading in securitised instruments by concluding the first-ever placement of auto-receivables which will be listed and traded on the National Stock Exchanges (NSE) wholesale debt market.

It has placed Rs 20 crore worth of auto loans with mutual funds on a non-recourse basis. The securitised paper with a tenure of 27 months carries a coupon rate of 15.5 per cent and has been rated AAA(SO) by Crisil. The investors in this paper are Alliance Capital, SBI Mutual Fund, Birla Mutual Fund and Birla Global Finance.

This is the first ever securitised debt issue to be listed on the NSE. In a bid to attract investors to this new instrument, Citibank has also appointed Birla Marlin Securities as the market makers for the instrument. Birla Marlin will offer two-way quotes on the instrument.

 

The instrument has been rated as a structured obligation because Citibank has provided a credit enhancement of 7 per cent of the issue amount for the investors.

This means that Citibank has deposited Rs 1.4 crore in an Escrow account to be used for paying the investors in case of default on some of the loans. However, unlike other securitised instruments, the investors have no recourse to the issuer apart from the Rs 1.4 crore credit enhancement facility.

This facility has been put in place to provide a higher level of comfort to investors. This is expected to be adequate cover as the default rate of these auto loans is understood to be under 0.5 per cent.

The instrument has been issued through a special purpose vehicle, Peoples Financial Services Ltd. This company, owned by eminent legal and accounting experts, has bought the loans from Citibank and in turn, issued the securitised paper to the investors.