Structured finance deals jump 90% in first half of ’07: Moody’s

Structured finance deals jump 90% in first half of ’07: Moody’s

New Delhi: Domestic transactions of structured finance, a process of arranging funds by banks and other entities through partly selling their loan books, grew by a whopping 90% to $5.5 billion in first half of this year, global rating agency Moody’s said on 6 September.

In the first half of 2006, the domestic issuance of structured finance was at $2.9 billion.

Deal numbers almost doubled during first half of this year and the prospects are robust for the second half as well, Moody’s Investors Service said in its report titled ‘Structured finance in India´.

This vigour confirmed that the market has recovered the fast pace observed since 2000, the report added.

“With the retail lending business in India likely to grow, although possibly at a slower rate, we expect asset backed securities (ABS) issuance to increase in second half of this year," Moody’s assistant vice-resident in Hong Kong Dominique Gribot-Carroz said.

In the first half of 2007, ABS issuance grew more than 90% compared to the year-ago period, the report which was jointly written with Moody’s affiliate in India -- ICRA said.

ABS accounted for 64% of the issuance in the first half of this year, thus remaining the largest product class, while securitisation of single corporate loans, that accounted for 29% also propped up the volume.

Only three Residential Mortgage Backed Securitisation (RMBS) transactions closed during the period under review and accounted for 7% of issuance.

Consequent to capital constraints and loan growth banks

would be in the need of money and Moody’s expect transactions in asset-backed securities to grow in the second half of the current fiscal.

Transactions in structured finance flattened to around $6 billion during 2006 due to tight liquidity and the resulting rise in interest rates and guidelines issued by RBI.

The average issuance per transaction in India amounted to $43 million in first half of 2007, similar to the previous year period.

There were no public cross border transactions in the first half of 2007, although such deals are expected in the later part of the year.

Moody’s said regulatory measures such as recognition of Pass Through Certificates (PTCs) as securities and permission for government pension and provident funds to invest in securitised paper could further boost the securitisation market.

The potential launch of real estate mutual funds (REMFs) may also facilitate institutionalisation of real estate sector and encourage this market.