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C. Shivkumar

BANGALORE, June 20

CANFIN Homes Ltd (CHL) has hit the market with a structured mortgage-backed securitised (MBS) paper.

CHL is promoted by Canara Bank, HDFC and UTI, who comprise the largest stake holders. CHL is the second housing finance company after the Housing Development Finance Corporation this financial year to tap the market through the MBS route.

HDFC had mopped up its targeted Rs 156 crore through MBS, an off-balance sheet route to raise resources. CHL is raising only Rs 58 crore through the current issue.

Speaking to Business Line, the CHL Managing Director, Mr Umesh Shenoy, said that the entire issue would be privately placed as was the case with HDFC. However, unlike the HDFC, which opted for the book-building route, CHL is offering a fixed coupon of the 8.99 per cent payable on a monthly basis, which works out to a yield to maturity of 9.25 per cent.

The MBS paper will have tenor of seven years. But the target for raising the funds would be mostly financial institutions and banks. The advantage to intending subscribers is that the lean season credit policy had relaxed risk weighting on housing finance to 50 per cent. This is given the fact that currently institutions would have to provide 10 per cent CAR beginning from the current year onwards.

The CHL paper is essentially in the form of pass through certificates (PTC), which implies that the collection and collateralising of the securities would be vested with the National Housing Bank which is also the trustee.

The collateral for the PTCs is the properties funded by CHL.

This paper has obtained a +LAAA+ rating from ICRA. And to secure this high safety rating, additional safeguards had to be built into the instrument. The safeguards have been provided in the form of additional collatalising to the extent of another Rs 27 crore, which would comprise Part B of the MBS.

In addition, CHL would also provide a liquidity support to the extent of Rs 77 lakh, which would act as a backstop facility. This facility would be triggered in the event of shortfalls for meeting the PTC investors' payments.

One of the main advantages of this paper for the originator is that such resources raising would be well within the existing CAR of the housing finance companies and it helps reduce the weighted average cost of working funds.

The bigger advantage is that in parcelling the underlying cash flows and selling it, HFCs also tend to realise a spread. The spread is the difference at which the original loan was made and the current discounting rate on the PTCs. The original loans were made at rates as high as 13.5 per cent, which translates into a spread of at least 3 to 4 per cent.

However, Mr Shenoy said ``Such spreads are only notional. Instead with every reduction in the cost of the working funds, the HFCs themselves will also pass the benefits to the borrowers.''

But one of the compelling reasons for HFCs to raise these kinds of resources is also due to CAR. Most of the HFCs have already reached the upper limit of the CAR.

Consequently, the ability to raise resources by borrowings has significantly declined. Under NHB guidelines, HFCs are allowed to leverage only up to 10 times their capital. Some HFCs are capitalised only to the extent of about Rs 100 crore which includes both equity and reserves.

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