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| Sunday, 14 July 2002 |
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New instrument to raise long-term funds The Housing Development Finance Corporation (HDFC) has proposed People's Merchant Bank Ltd. to arrange a securitisation issue for Rs. 260 million to mobilise the funds it requires. The instrument proposed was a trust certificate secured by a pay-through type of securitisation where receivables pertaining to HDFC's EPF loan portfolio and a part of the mortgage portfolio were securitised. These securitisation notes, having a biannual maturity profile, were placed with the National Savings Bank (NSB) by the merchant banker to the issue, Peoples' Merchant Bank. The trustee to the issue is Deutsche Bank Ltd. while E&Y Law Ltd. executed the relevant legal documentation. The signing of the legal documentation and disbursement of funds to HDFC took place recently at the Ministry of Housing and Plantation Infrastructure. HDFC has expanded its annual lending turnover by about 200 per cent over the last few years. Its core objective is the provision of housing loan facilities to low income groups at reasonable rates of interest for long periods. It was looking for matching funds to be invested in lending, CEO and General Manager C.A. Sarathchandra said. However, since fund sources in the market are not long term, HDFC, for some time, had been looking for innovative sources of finance. The Asian Development Bank and other international agencies from which the HDFC had sought finances in the past had also been advocating innovative financial instruments such as securitisation. Mortgage securitisation is used as a source of funds for housing finance in developed countries. Sarathchandra said that it was in fact this advice given by the ADB, which had initially motivated HDFC to carry out a securitisation. "Through this, HDFC was able to raise funds at an attractive rate of interest, which was marginally above the gilt-edged rates," he said. According to CEO and Managing Director of People's Merchant Bank Naomal Soyza, the unique feature of the issue is the low level of risk borne by the ultimate investor, NSB, due to the zero default rate applicable to EPF loans. |
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