ICICI to securitise Rs 475 cr of mortgage-backed loans

Our Banking Bureau

Mumbai, Oct 8: ICICI is all set to hit the market with a Rs 475-crore securitised issue of mortgage-backed corporate loans. The tenure of these bonds is seen at about four to five years and may be priced closer to 11 per cent thereabouts, sources say. The tenure and the pricing are yet to be decided.

The Credit Analysis & Research Ltd (CARE) has given an “AA-” rating to the transaction and this is reflective of the underlying asset quality. “The average interest rate at which these loans must have been given would have been in the 13-14 per cent range. The interest rates on these bonds may be pegged at about 11 per cent levels. It all depends on market conditions, but ICICI will be able to make atleast a three per cent spread,” analysts surmised.

Under the said transaction, ICICI will sell a pool of loans along with all the rights and beneficial interests therein to a special purpose vehicle (SPV). The SPV, in turn, will shall issue pass through certificates (PTCs) to investors.

The PTC holders shall receive all future interest and principal payment receivables from the underlying pool of loans. ICICI, as the Trustee, shall continue to collect the interest and principal on these loans.

“The rating factors in the inherent strengths of the cash flows arising out of the securitised pool of loans disbursed by ICICI. The strength of the cash flows have been determined through an analysis of the credit strength of the individual obligors and the external credit support available to the loans wherever applicable. The rating also takes into account the structured payment mechanisms and the legal structure,” CARE observed in its statement.

The impending ICICI securitised transaction is a collateralised loan obligation (CLO) issue by mortgage backed receivable securitisation.
CLOs are structured securities with cash flows linked to the performance of an underlying pool of corporate loans orginated typically by banks and financial institutions.

These CLOs are extensively used in developed markets due to its many advantages to the orginating banks as also to investors.

It allows orginating banks to keep exposure to individual borrowers within reasonble limits, allows capital to be used more efficiently and at the same, helps in maintaining relationships with borrowers.
In the case of ICICI, it is essentially using an off-balance sheet route to leverage its balance-sheet and capital better.

A few things happen as a result of this transaction: absolute exposure comes down; the route allows ICICI to later have more exposure or keep it at a lower level; and also releases pressure on the capital adequacy side. In sum, it is a tool for better asset-liability management.

Investors also benefit by getting exposure to clients with whom they may find it difficult to establish a direct relationship. They also the get the benefit of diversification as they get exposure to different industries and business groups.