According to a report by credit rating agency Crisil, more than 80 per cent of the corporate single loan sell-down (CSLS) instruments issued by banks (Rs 25,000 crore) in 2007 were of realty and NBFCs, up by 350 per cent from Rs 4,600 crore in 2006. And debt funds have been the largest investors in them.
In a CSLS transaction, the loan receivables are securitised and the pass through certificate (PTC) rating reflects credit quality of the borrower. If the rate of return being offered is 15 per cent, the issuing bank charges around 2 per cent as margin and the buyer PTCs will get 13 per cent for the loan tenure.
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According to the report, more than 95 per cent of the transactions involved issuance of short-term (up to one year) instruments.
Crisil Ratings Director N Muthuraman said, "The number of transactions were also up exponentially, from 51 in 2006 to 250 in 2007." The CSLS market has gained momentum in the past 18 months, since funding for the two sectors had slowed down, he added.
Sandeep Singh, associate director (structured finance), Fitch Ratings, said, "Mutual funds are opting for these certificates as they are more secure than investing in bonds directly. If a mutual fund has bought a real estate firm's bond and the realtor defaults, the only option the fund has is to go to the civil court. In a CSLS issued by a single real estate firm, the defaulted papers can be sold to the banks, who can takeover (or freeze) the company's assets given as collateral."