IDBI to mobiles Rs 1,500 cr via securitisation

Mumbai: Industrial Development Bank of India (IDBI) has decided to securitise the assets of National Hydel Power Corporation (NHPC), Larsen & Toubro (L&T) and National Thermal Power Corporation (NTPC) to mobilise around Rs 1,500 crore. The premier financial institution (FI) is likely to sign a deal with State Bank of India Capital Markets to manage these deals soon.

"It is expected that the securitisation products will solve IDBIs resource crunch to a large extent, since an exposure to a special purpose vehicle floated by IDBI will not be treated as IDBI exposure as per the existing norms," say merchant banking sources.

The sources say IDBI has plans to raise Rs 4,000 crore through securitisation deals this fiscal. The FI wants to mobilise around Rs 265 crore by transferring the assets of NHPC and L&T and another Rs 1,000 crore by securitisng NTPC assets. The securitisation process will be completed in tranches. A senior IDBI official says the resources from the securitisation deals will be used to refinance IDBIs existing high-cost debt, as well as to meet its bond-redemption payments. Moreover, the institution has lined up several capital expenditure projects in the infrastructure sector.

Currently, the main problem faced by the term-lending institution is that major institutional investors like banks are hesitant to buy IDBI bonds, since most of them have reached their prudential exposure limits. Securitisation is a process whereby non-tradable or illiquid financial assets are transformed into tradable securities. It involves the transfer of an asset or a pool of assets, directly or indirectly, by the owner of the assets to a special purpose vehicle, which is funded through an issue of debt securities or notes backed by the cash flows generated by the assets. Securitisation offers a numbers of advantages to the owner of assets, to the investors and to the financial system of the country. From the owners perspective, securitisation improves the liquidity position by replacing receivables by cash. It removes assets from the sellers balance sheet, thus liberating capital for other uses.

This leads to restructuring of the balance sheet by reducing large exposures or sectoral concentration. It leads to better asset-liability management by reducing market risks resulting from interest rate mismatches. Similarly, securitisation provides a relatively risk-free investment for the investor. They are basically good-quality assets, helping the investors to diversify their portfolios.