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IFMR Capital structures India’s first collateralised bond obligation

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In keeping with its mission of providing access to debt capital for financial enterprises serving the financially-excluded communities, IFMR Capital today announced India’s first collateralised bond obligation (CBO) – the IFMR CBO I of Rs 98 crore, comprising multi-issuer pooled non-convertible debentures. The CBO includes eleven issuers. These are microfinance companies and small business lenders whose end customers are either self-employed individuals from the financially excluded segment or the ones employed in informal sectors. All the participating companies were first time issuers of NCDs. The CBO transaction has created an efficient route for such entities to access capital markets.

IFMR Capital previously pioneered the multi-originator securitisation and has to date structured many such multi-issuer securitisation transactions (Mosec) in microfinance and small business loans. The Mosec is a structured loan pool created by combining loans of small and medium originators in order to create a well-diversified portfolio of a critical size that can be taken to the market. The CBO issuance is a significant step towards unlocking the potential of capital markets for such originators.

Speaking on the CBO issuance, Dr Kshama Fernandes, CEO, IFMR Capital said, “This transaction is an illustration of our efforts in developing scalable structures for meeting the requirements of our clients and investors. The diversification, credit enhancement and IFMR Capital’s participation ensured that a large number of our clients could issue bonds for the very first time. Product development expertise, legal drafting capacity and execution capability are critical to pulling off a structure like this. With all these in place, we are now confident that we can take more issuers to capital markets and continue to attract new investors into such structures.

While the CBO introduces several high quality, small sized originators to the capital markets for the first time, it also opens up an investor base that is willing to invest in on-balance sheet debt instruments issued by them. Historically small-sized firms have found it difficult to do so, given the threshold constraints for ratings of the issuer and the instrument.

Mr Sachin Pillai, COO – Hinduja Leyland Finance, investor in the CBO said, “Over the year, we have forged a strong relationship with IFMR Capital, investing in their origination partners through various capital market instruments. While securitization is a transaction format that we participate in frequently, the multi-originator bond issuance is an absolute first in India and we are happy to be the pioneering investors in the same. This new structure adds value as it gives us not only the diversity akin to a multi originator securitisation, but also provides on-balance sheet comfort and a partial guarantee cover as well. We hope to see many more of such transactions in the market.

Speaking on accessing capital markets for the first time, through the CBO, Mr R Baskar Babu, Promoter and MD, Suryoday Micro Finance Private Limited, said, “This effort by IFMR Capital has opened up a new but most desirable vista to raise debt capital to fuel our growth. This will help us meet the credit and financial needs of our customers faster, taking us a step closer to financial inclusion.

The issuers in the transaction include Annapurna Microfinance, Asirvad Microfinance, Arohan Financial Services, Disha Microfin, Future Financial Services, India School Finance Company, Intrepid Finance and Leasing, Pahal Financial Services, Suryoday Micro Finance, SV Credit Line and Svasti Microfinance.

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