Structured finance market roars back
Issues of structured finance products went up to $5.5 bn in the first half of this fiscal from $2.9 bn in H1 last year.
By TNN |
MUMBAI: After remaining subdued for most of last year, activity in India’s structured finance market has again started picking up. Issues of structured finance products grew 90% to $5.5 billion in the first half of (H1) this year, from $2.9 billion in the same period last year, according to a latest report by ratings firm Moody’s.
This is reflective of the pace of growth in the market that one saw in 2000.
Broadly, structured credit involves financing on the basis of anticipated cash flows that will accrue to the borrower. Securitisation is one form of structured finance. Securitisation activity in the country had slowed down since February 2006, after the Reserve Bank of India (RBI) had asked banks to set aside more capital for loans they dispose through the securitisation route.
Therefore, lenders chose to directly sell loan pools to investors. Tight liquidity and the resulting rise in interest rates then contributed to the slowdown in issuance, which flattened to around $6 billion for the whole year. India remains mostly a domestic market with many small transactions, according to the report. The average issuance per transaction amounted to $43 million in H1’07, similar to H1’06.
Regulatory measures such as recognition of PTCs as securities and permission for government pension and provident funds to invest in securitised paper could further boost the securitisation market.
The Securities Contracts (Regulation) Amendment Bill 2007 passed by the Lok Sabha, the lower house of Parliament, in May 2007 paved the way for the creation of a legal framework for the listing and trading of Pass-Through Certificates (PTCs).
The enactment of this law — pending as of mid-July — would enable the secondary market liquidity for securitised debt instruments.
It could also reduce rates for securitised papers. Currently, investors demand a premium because they must hold the paper until maturity; indeed, trading in certificates or instruments relating to securitisation deals cannot occur in stock exchanges, as they are not covered under the definition of “securities” in the Securities Contracts Regulation Act 1956.
In South-East Asia, according to Moody’s, the structured finance market activity was prominent in Singapore and Malaysia during the first half of 2007. Property-related securitisations more than doubled in Singapore, the location of Asia’s most developed REIT market outside of Japan and Australia.
In Singapore, total issuance rated by Moody’s in H1’07 was almost $1.2 billion, more than twice that of H1’06, and nearly equal to all of 2006. In Malaysia, H1’07 domestic issuance exceeded $1 billion and Cagamas returned to the market with its second Islamic RMBS. The first Malaysian synthetic CLO was also launched in May.
This is reflective of the pace of growth in the market that one saw in 2000.
Broadly, structured credit involves financing on the basis of anticipated cash flows that will accrue to the borrower. Securitisation is one form of structured finance. Securitisation activity in the country had slowed down since February 2006, after the Reserve Bank of India (RBI) had asked banks to set aside more capital for loans they dispose through the securitisation route.
Therefore, lenders chose to directly sell loan pools to investors. Tight liquidity and the resulting rise in interest rates then contributed to the slowdown in issuance, which flattened to around $6 billion for the whole year. India remains mostly a domestic market with many small transactions, according to the report. The average issuance per transaction amounted to $43 million in H1’07, similar to H1’06.
Regulatory measures such as recognition of PTCs as securities and permission for government pension and provident funds to invest in securitised paper could further boost the securitisation market.
The Securities Contracts (Regulation) Amendment Bill 2007 passed by the Lok Sabha, the lower house of Parliament, in May 2007 paved the way for the creation of a legal framework for the listing and trading of Pass-Through Certificates (PTCs).
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The enactment of this law — pending as of mid-July — would enable the secondary market liquidity for securitised debt instruments.
It could also reduce rates for securitised papers. Currently, investors demand a premium because they must hold the paper until maturity; indeed, trading in certificates or instruments relating to securitisation deals cannot occur in stock exchanges, as they are not covered under the definition of “securities” in the Securities Contracts Regulation Act 1956.
In South-East Asia, according to Moody’s, the structured finance market activity was prominent in Singapore and Malaysia during the first half of 2007. Property-related securitisations more than doubled in Singapore, the location of Asia’s most developed REIT market outside of Japan and Australia.
In Singapore, total issuance rated by Moody’s in H1’07 was almost $1.2 billion, more than twice that of H1’06, and nearly equal to all of 2006. In Malaysia, H1’07 domestic issuance exceeded $1 billion and Cagamas returned to the market with its second Islamic RMBS. The first Malaysian synthetic CLO was also launched in May.
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