IIDL has issued debentures worth of Rs 409 crore to be serviced over a period of eight years in EMI, and interest accrued during the first 10 months will be amortised. The novelty of this innovative asset-backed securitisation (ABS) is that instead of a plain loan, a securitisation route has been adopted.

This was simply securitisation of lease receivables as IIDL will lease out the power plant to IPCL on completion. But it creates difference from any ordinary auto lease securitisation in the sense that the plant is yet to be completed. Even the securitisation route can be used for construction financing. In a normalasset-backed securitisation, asset is already leased out and then existing cash flow has been seasoned before securitisation.

The lessor gets refinanced by transferring the leased out assets and cleans its balance sheet. The lessor enjoys simply the servicing spread. In L&T's case, securitisation will finance even the asset creation. A 14.5-per cent interest (monthly) payable makes the deal attractive. Otherwise seasoning of the cash flow could have been the precondition. Of course, the prospective lessor, IIDL, parent's credibility and the prospective lessee IPCL makes all the difference.

In fact, securitisation as a refinancing technique (and even as a financing technique) is slowly picking up. In India, the first securitisation took place between Citibank and ICICI in 1990; but the growth of securitisation market is very slow. The first Indian ABS transaction for Rs 16 crore was completed in 1991 between Citibank and GIC Mutual Fund.

Since then number of players and volumes have multiplied manifold.Credit Rating Information Services of India Ltd (Crisil) alone has rated securitisation transactions worth over Rs 1,200 crore till September 1998. As per one estimate, out of the asset securitisation done between 1992 and 1998 around 35 per cent of the transactions relate to hire-purchase receivables of trucks and the rest towards other auto/transport segment receivables.

Earlier the SBI Cap had structured an innovative deal during 1994-95 which carried many important features of securitisation. Rajasthan State Industrial Development & Investment Corporation (RSEB) wished to raise funds amounting to Rs 250 crore. Its weak balance sheet was the stumbling block. Therefore, a pool of future cash flow consisting of high-value customers of RESB was rated and charged to RIICO, a profit-making government company.

RIICO issued bonds to various investors is the private placement route and passed the funds to RESB. The bonds were serviced by RIICO. The future cash flow and underlying receivables were charged toRIICO by way of a mortgaged deed. This packaged transaction, although it carried features of securitisation, was not securitisation in the strict sense of the term.

ICICI had entered into acquisition of receivables due from DoT to its various suppliers like Usha Beltron, RPG Telecom, Finolex Cables, etc. ICICI has also securitised Telco's auto loan portfolio. ICICI has already securitised about Rs 2,600 crore of its loans till September 1998.

Till now most securitisation deals in India have involved cars and commercial vehicles hire-purchase receivables of non-banking finance companies (NBFCs). They include leading NBFCs like Tata Finance, SRF Finance, Birla Global Finance, Cholamandalam Finance, Overseas Sanmar and Ashok Leyland Finance among others. Citibank, State Bank of India, Bank of India, Unit Trust of India, ABN Amro, ANZ Grindlays Banks and Standard Chartered are some of the leading buyers of securitised assets.

Ashok Leyland Finance (ALF) is an important player among non-banking financecompanies having securitised hire purchase receivables of trucks, cars, LMVs, LCVs, construction and project equipment of over Rs 500 crore between during July 1995 and March 1998. The disbursements of ALF during the financial year July 1997 to June 1998 have so far been good and the company is confident of finishing the year with disbursements crossing the Rs 1,000-crore mark against Rs 680 crore in the previous year. The company has been able to create assets to a large extent during the year and between December 1997 and March 1998 by that it could do securitisation deals to the extent of Rs 300 crore.

In the international market, Thames Asset Global Securitization No 1 Inc (TAGS) is a multi-seller asset-backed commercial paper vehicle sponsored and administered by NatWest Markets and managed by Coutts & Co (Jersey) Ltd. TAGS issues US dollar commercial paper under a US$2 billion A1/P1 rated commercial paper programme. TAGS' total securitisation programme amounts to over US$1.1 billion.

Securitisationis not essentially a route of raising finance or enhancing credit. Yet another innovative application of securitisation lies in the perception of a leading banker to use it as a risk management technique. The State Bank of India is reportedly looking at reducing the average maturity of its asset portfolio in the securitisation route.

The bank already has excess loanable funds through a 18 per cent growth (year-on-year) in deposits, securitisation has not been looked at as a fund mobilisation option. The SBI is not comfortable with asset exposures of over five year maturity. This includes SBI's exposure to both investments and advances. The idea is to hive off a large part of the bank's exposure in assets of over five year maturity and lap up assets at the shorter end. The funds mobilised through asset securitisation may be deployed in investments with maturities between 45 days and five years.

However, there is a need for developing active secondary market for the securitised instruments likeparticipation certificates or bonds as is in existence in the USA for mortgaged backed securities. This would provide market liquidity. At the same time the holders of securitised instruments of the IIDL which has reportedly been placed within one hour needs to appreciate the reinvestment risk involved as regards the flow of principal back in EMI.

The author is professor of finance, Institute of Management Technology, Ghaziabad