Structured Finance Issue: Shriram Finance’s US$300m social bond
Indian non-bank financial company Shriram Finance introduced investors to India’s first cross-border asset-backed securitisation when it printed a US$300m 6.5-year social note backed by receivables, making it the best structured finance deal of the year.
Shriram Finance has established itself in the offshore market, becoming a familiar name to US dollar investors, particularly those who look for ESG labels. The NBFC has been actively deepening its funding options and decided to adapt structures it had used in the rupee market to bring an offshore structured deal.
The 144A/Reg S transaction took more than a year to come together and required additional time for investors to understand the structure, before hitting the market in March.
The notes were issued through a Mauritius-incorporated special purpose vehicle of Shriram Finance called India Vehicle Finance, and the proceeds were used to subscribe to rupee-denominated senior pass-through certificates issued by Sansar Vehicle Finance Trust December 2022, an onshore bankruptcy-remote trust. Shriram Finance sold and acted as servicer for the certificates, the proceeds of which were used to purchase a pool of commercial vehicle and construction equipment loans.
The senior bonds were secured over the shares and assets of the issuer, and there is a 4.5-year replenishment period during which the company can add more receivables to the pool.
The amortising notes have a weighted average life of about 3.5 years, and an expected maturity of five years. The principal will be repaid over 60 months, with 6% paid at 12, 18, 24 and 30 months, 12.5% at 36.5, 42, 48 and 54 months, and 26% at 60 months.
The structure of the deal allowed it to be rated BBB– by Fitch, above Shriram Finance’s BB/BB (S&P/Fitch) senior ratings, broadening the appeal of the deal to new investors who had not bought its paper before.
The notes were well supported from the start, anchored by a hefty US$150m from International Finance Corp, leaving only half of the deal to be allocated to other investors. The order book reached US$900m during the day, before dropping to US$410m from 25 accounts after an aggressive price tightening from 6.15% area to 5.85%.
The debut transaction opened up a new offshore funding channel for Shriram Finance to tap again in the future, widening its investor base further and providing an example for other Indian financial institutions to follow.
Barclays was the global coordinator, while BNP Paribas, DBS Bank, Deutsche Bank, HSBC, JP Morgan and Standard Chartered were the lead managers and bookrunners.
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