| Business Services >> Structured Finance |
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ICICI Bank has harnessed new technologies and thought processes to introduce numerous products and services in the area of Corporate Finance to suit various clientele. The products can be broadly classified into:
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• Working Capital Finance.
• Structured Products.
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Working Capital Financing
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Working capital products include both fund and non-fund based products. Fund-based working capital products include cash credit, packing credit, short-term loans payable on demand, inland/export bills discounting, export and import financing and subscription to commercial paper. Non-fund based products include documentary credit and bank guarantees.
• General Conditions For Working Capital Facility For CBG Clients
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Other Fund-based Products:
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MIBOR Linked loans, Commercial papers (CPs), FCNR - B loans, Debentures and cash-flow gap finance are other types of loans available to corporates.
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Structured Products:
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ICICI Bank's Structured Products can be broadly classified into Securitisation and Structured Financing.
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Securitisation:
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Securitisation involves financing of existing or future identifiable cash flows/receivables, with limited/full recourse to the company, with over-collateral of 1.5 to 3 times and liquidity account equal to 3-6 months. The normal tenure would be between 3-7 years and the amortization would mirror the cash flow profile of the securitised receivables. Securitisation results in better balance sheet management in terms of capital adequacy ratio and debt equity ratio, shifting of credit risk for non-recourse structures, liquidity support and better pricing. A brief outline of the various securitisation deals and their structure, concluded by ICICI Bank are mentioned below
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Auto Loan Receivables:
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A pool of identifiable receivables satisfying the criteria specified by ICICI Bank are purchased by ICICI Bank / Special Purpose Vehicle (SPV) for a consideration net of over collateral. ICICI Bank appoints the originator as the Managing and Collection (M&C) agent to collect the receivables under the contracts and deposit them in a Trust and Retention (T & R) account. The trustee makes the payments on the due dates to ICICI Bank from the T & R account.
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Credit Card Receivables:
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A product designed to fund clients who have a high volume of credit card receivables by discounting future credit card sales. A tight payment structure is created wherein ICICI Bank recovers its dues by trapping the discounted proceeds directly from the Acquiring Bank. Employee Housing Loan Portfolio Buyouts The portfolio of housing loans given by a company to its employees is taken over by ICICI Bank with or without recourse to the employer. Due to long tenure of loans, risk view is taken based on individual employees and the property rather than the comfort that is derived from the employer. The employer is appointed as M&C Agent and ICICI Bank obtains repayment on the pool of securitized housing mortgages through direct salary deduction by the employer.
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Fertilizer Subsidy Receivables:
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The transaction involves securitisation of existing receivables (due from the Government of India as subsidy to the company upon sale of fertilizers by the company) and hypothecation of all the Receivables that would arise in future which would be deemed as sold as and when they arise. The receivables would be escrowed directly to ICICI Bank through a collection account and the company would provide adequate instructions to the Bankers in that regard. The company would also act as M&C (managing and collection) agent for the transaction. Due to the untimely nature of the payments by the government and the need to enhance the rating of the structure, liquidity support mechanism may be required in the form of cash collateral or a standby Letter of Credit from an acceptable bank.
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Export Receivables
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The export receivables of the company are purchased by an offshore SPV. The offshore SPV issues Pass Through Certificates in the international capital markets to raise funds for the purchase of the receivables. The payments under the export receivables from the importers (international) are directly credited into the offshore proceeds account of the company maintained in an international location. The investors receive the payments directly from the offshore proceeds account of the company.
Collateralised Loan Obligations (CLOs) / Collateralised Bond Obligations (CBOs)
A special purpose vehicle (SPV) can be created which purchases the illiquid loans and/or debentures and issues securities (CLOs/CBOs) to investors. The cash flows from the underlying assets are used to service the securities issued by the SPV. The structure leverages on the pooling of large number of low to medium rated assets to raise funds at a higher rating compared to the underlying assets. This pooling gives benefits of diversification with respect to industries and creditors and hence the rating of the securities can be higher than the underlying assets.
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Structured Financing:
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Traditionally Corporate borrowing has been on the basis of strength or weakness of balance sheet, with the credit quality of the borrower being the single most important factor. But of late the borrowings are being closely linked to the value of the asset or the revenue earning capability of the asset - by means of structured finance. Structured financing involves a customised package from a lender to the borrower.
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Dealer financing:
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Dealers of large corporates can be provided finance which can be either with a limited recourse (on a first loss basis) to the corporate or based on the creditworthiness of the dealer and its relationship with the manufacturer. The various structures are: Bill discounting / Web-based financing with/without recourse, Cash credit / Demand loan facilities, Financing for auto dealers with incentives for conversion into retail loans.
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EPC Contract Financing:
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Corporates are provided assistance to finance the gap between the inflows and outflows of the contract; and Performance guarantees and advance payment guarantees given on behalf of the client to the Contractor/Owner.
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Investment Monetisation:
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A product designed to cater to the requirement of the business groups to streamline the cross-holdings within themselves. A Trust would be set up which would acquire the intra-group cross holdings from the various companies in the group at current market prices. To fund this, the Trust would issue Pass-through Certificates (PTCs) to ICICI Bank. The take-out would be a put option with the identified holding company of the group where ICICI bank could sell the PTCs to put-provider at a pre-determined price on a fixed date. The security could be pledge of additional shares.
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Trade financing (long term):
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This product leverages on the long-term relationships that companies have with clients or explicit off take agreements, which go a long way in reducing market risk for their products. The company can access long-term funds on the basis of these strong relationships or agreements. The product can be structured as a long-term loan with escrow of the receivables originating from supplies to these customers or as a securitisation of these future trade receivables. Typically the quantum of these receivables would be such as to provide a margin over the debt servicing during each period. The customers would need to be instructed to directly pay the moneys into an escrow account, which would be used for debt servicing or for payment against the future receivables securitisation. Depending on the past track record and the coverage provided by the receivables, additional credit enhancements like cash collateral for a limited amount may be specified.
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Real Estate Investment Trust (REIT) / Real Estate Management :
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Investment Companies (REMIC) structures
REIT or a REMIC is a Special Purpose Vehicle (SPV) which can be created to hold real estate assets. The SPV can be constituted in the form of a trust or a company. The SPV shall own the property and lease it to the company. The funds for the purchase of property can be provided by ICICI Bank, which can be serviced by the lease rental payments. Sometimes, it is necessary to use a structure involving two SPVs to meet the objectives of off-balance sheet treatment, stamp duty & tax efficiency and possession and control of the property in the hands of the lessee. The transaction can include options to the company, which on being exercised can transfer the ownership of the property from the SPV to the company.
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Brand financing:
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The structures could be a loan to the company with security of the brands, loan to a company to fund purchase of a brand, or a sale and lease back of brands by the lender. In the first option the brand would be mortgaged in the name of the lender and only in the event of default of the loan would the brand be transferred to the lender. In the second option the loan would be given to the company exclusively for purchasing the brand/s which would then be mortgaged in the name of the lender. In the third option the lender would purchase the brand from the company, and lease/license it out to him. After expiry of the leave/license period the brand could either revert to the company or be sold to someone else.
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Vendor financing:
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Vendor financing can be structured as a direct line of credit to the vendors specifically to be used for supplies to the company or as a revolving line for discounting bills raised by the vendors on the company. The former can be integrated into the Internet banking model of ICICI Bank and a web-based vendor financing structure can be created. The web-based structure would offer the company the convenience of operating the credit line of the vendors for making payments through the net immediately after accepting goods. Vendor financing programs can be set up for specific vendors recommended by the company. Through the widespread branch network of ICICI Bank, the program can include vendors at multiple locations.
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Transporter financing:
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A product designed to finance the truck operators who are dedicated in servicing to a company. The truck operators are typically small players and hence have limited sources for raising funds. It is likely that the vehicles used by them have been financed at a high cost which they would indirectly be passed on to the company in the form of increased freight rates. A financing facility could be set up for the truck operators, which could be used for refinancing their existing vehicles or could be used for expansion of their fleet in line with the company's growth requirements. ICICI Bank can provide a line of credit for funding the truck operators. The company could recommend truck operators for financing under this facility after satisfying itself of the satisfactory performance of the operator in the past. ICICI Bank performs its own evaluation of the truck operator based on the recommendation.
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