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Asset Finance Round-Up - International Law Office

International Law Office

Asset Finance - India

Asset Finance Round-Up

December 19 2001

Aircraft Financing
Foreign Currency Loan
Securitization of Assets

Aircraft Financing

Recent airline industry downsizing has not deterred two domestic Indian operators from expanding. Air Sahara, which is aggressively seeking an increase in its market share, is adding two leased Boeing aircraft to its fleet. Incentives for passengers include in-flight shopping and the recognition of flights taken with other domestic airlines for its own frequent flier programme. Meanwhile, India's national domestic airline, Indian Airlines, has received the first of the two leased Airbus A-320 aircraft from Orix. The second is likely to be delivered soon.

Foreign Currency Loan

With the fall in the London Interbank Offered Rate (LIBOR), Reliance Petroleum, India's leading petroleum products private company, is set to gain around $15 million per annum on its $750 million syndicated foreign currency loan.

On April 29 2001 Reliance concluded the syndicated loan, which was priced at an average of 123 basis points above the LIBOR with floating rates. Now the floating rate is 90 basis points above the LIBOR and will increase over the tenure of the loan. At the time of syndication in April, the LIBOR was approximately 4.5% and is now at 2.5%, a level at which it is expected to remain for some time.

Securitization of Assets

ICICI (a leading private sector bank in India) is planning to securitize its loan portfolio which is worth Rs500 billion. This transaction represents the first Indian securitization of wholesale loans granted to more than one borrower.

The loans have been rated 'AA-' by Credit Analysis and Research for their proposed collateralized loan obligation (CLO) structure. A trust will be used to issue the debt instruments. CLOs are used extensively by financial institutions in developed countries in order to match their sector and borrower exposure limits, and maintain a diversity of funding sources. Securitization will help ICICI to turn the assets into tradeable capital markets instruments and realize upfront cash (based on the interest rate structure of the securitized instruments), thus enabling the booking of capital gains on the loan.

For further information on this topic please contact Ravi Nath at Rajinder Narain & Co by telephone (+91 11 506 5000) or by fax (+91 11 506 3580) or by email (rnc@del2.vsnl.net.in).

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