CRISIL Upgrades Ratings of First Microfinance PTCs

MUMBAI, India, October 27 /PRNewswire/ -- Following the first rated
securitisation of micro-loans in India, the pass-through certificates (PTCs
or securities) from the transaction have received a rating upgrade from
CRISIL. The ratings of the senior and junior tranches of PTCs have been
upgraded to AAA (so) and A (so), from their original ratings of AA (so) and
BBB (so) respectively.
The transaction, which was concluded by IFMR Capital in March 2009,
involved securitisation of micro-loan portfolio of Rs 157 million (principal
outstanding) originated by Equitas Micro Finance India Pvt Ltd. The upgrade
is based on the performance of the pool, the timeliness of payments to the
SPV and the extent of credit enhancement in relation to the outstanding cash
flows on the pool. Capital Structure of Securitisation

PTC Yield Principal Principal Principal Legal Expected Upgraded
Terms (Rs mn) % (At Outstanding Final Maturity Rating
issue) (Rs mn) Maturity Date
Date

Series
A1 Fixed 125.4 80% 59.0 22 Oct 07 May AAA (so)
2010 2010

Series
A2 Residual 31.3 20% 31.3 22 Oct 22 Oct A (so)
2010 2010

Cash
Collateral 18.3 11.7% 18.3 Unrated
of Issue
Size of
PTCs

As on 22 October 2009. Source: Report from IDBI Trusteeship Services Pvt
Ltd (Trustee for SPV)
IFMR Capital, the sole structurer and arranger, has provided second loss
credit enhancement in the form of an investment in 100% of the Series A2
securities and the Series A1 securities have been fully underwritten by a
bank investor.
For credit enhancement, Equitas had provided a first loss facility in the
form of cash collateral equal to 11.7% of the original principal amount of
the portfolio. This cash collateral together with the excess interest spread
(EIS) being trapped in the SPV are used to cover any shortfall in repayments
on both tranches of securities. The cash collateral is intact since the
beginning of the transaction, and the EIS has built up to an amount of Rs
13.4 million as on 07 October 2009.
The upgrade in the ratings marks a reiteration of the effective
origination capabilities of Equitas, backed by its strong systems and
processes for management of micro-loan portfolios.
IFMR Capital, which structured and invested in the landmark transaction
with Equitas, is promoting microfinance loans originated by high-quality MFIs
as an attractive asset class for a new category of securities in the ABS
market. The securitisation structure pioneered by IFMR Capital in India is
expected to open up new sources of debt capital such as mutual funds,
insurance companies, NBFCs and foreign banks, for the microfinance industry.
Banks are also expressing interest in rated microfinance paper due to
their liquidity and also due to the expected adoption of Basel-II capital
adequacy norms, which favour rated assets as against unrated assets on the
books of banks.
"The ratings upgrade strengthens our confidence in microfinance as a
promising new asset class for debt and equity investors across the globe. The
upgrade by three notches together, reflects the strength of the underlying
assets. This puts microfinance firmly on the map of mainstream capital
markets," said Sucharita Mukherjee, CEO, IFMR Capital.
"Equitas' unique set of processes and MIS systems have helped demonstrate
the quality of our portfolio and our originating capabilities. With this
rating upgrade, Equitas is now more confident of accessing the full range of
capital market instruments. In the medium term, this development will usher
in wider capital access for the entire microfinance sector as well,"
according to S. Bhaskar, COO, Equitas.
According to Mr.Ajay Dwivedi, Director-Structured Finance Ratings,
CRISIL, "The rating upgrades reflect the increased cover that the
transaction's credit enhancement provides to the PTCs as a result of the
strong collection. Continued strong collection performance in the transaction
could lead to a further upward movement in the rating for the Series A2 PTCs."
About IFMR Capital
IFMR Capital is a non-banking finance company based in Chennai, whose
mission is to provide efficient and reliable access to capital for
institutions that impact poor households. IFMR Capital acts as a bridge to
mainstream capital markets for under-served sectors such as microfinance
institutions, small and medium enterprises, agri-commodity backed financing
and low-income housing finance.
IFMR Capital will develop smooth and efficient access to capital markets
by creating transparent & robust underwriting standards and evaluation
frameworks for these new asset classes, standardizing investment structures,
and using financial structuring tools to generate high quality assets;
leading to price discovery, liquidity and growth in these new markets. This
will enable institutions in critically important sectors to reach out to new
sets of investors thereby expanding the sources of capital available to them.
About Equitas
Equitas Micro Finance India (Pvt) Ltd aims to extend micro credit to
people who are otherwise unable to access finance from the mainstream banking
channels. Equitas commenced business in December 2007 with the objective of
making available finance at reasonable cost and in a transparent manner to
women who are engaged in micro enterprise activities.
Equitas has 98 branches with portfolio outstanding of Rs 4,304.7 million
as on September 30, 2009, and net worth of Rs 1,315.4 million as on the same
date. Equitas currently serves more than 600,000 households across Tamil
Nadu, Maharashtra and Andhra Pradesh. Equitas has received a credit rating of
BBB- with 'Stable' outlook from CRISIL in July 2009, on a proposal for
long-term borrowings of Rs 5.0 billion. Also, Equitas has obtained an mfR3
grading from CRISIL.
For press queries, please contact:
Susmitha Chakkungal
susmitha.chakkungal@ifmrtrust.co.in
+91-90-0306-2231

SOURCE IFMR Trust (Institute for Financial Management & Research)

For press queries, please contact: Susmitha Chakkungal (
susmitha.chakkungal@ifmrtrust.co.in) +91-90-0306-2231.