Reliance sets Indian securitisation milestone
Units of Reliance Industries have raised a record Rs210bn (US$2.38bn) from India's largest securitisation deal, driven by strong demand from yield-hungry mutual funds.
The units, Jamnagar Utilities & Power and Sikka Ports & Terminals, issued passthrough certificates through multiple trusts to refinance loans to Digital Fibre Infrastructure Trust, an entity that holds Reliance's telecoms infrastructure assets through subsidiary Jio Digital Fibre.
"It’s a landmark transaction," said Killol Pandya, head of fixed income at JM Financial Asset Management. "The first of its kind in terms of structure and scale."
India's top domestic mutual funds, including ICICI Prudential Mutual Fund, SBI Mutual Fund, HDFC Mutual Fund, Nippon India Mutual Fund, Kotak Mahindra Mutual Fund, Aditya Birla Sun Life Asset Management and Axis Mutual Fund, are said to have taken up around 80% of the deal.
This encouraged the originators to upsize the deal. "Rs180bn was the initial size, but due to strong demand the issuer decided to increase the size," said a source close to the transaction.
The Triple A rated PTCs were issued with tenors of three, four and five years at an average yield of around 7.75%.
Mutual funds are said to have sold short-term holdings to buy the PTCs for their attractive yield, as the issuer provides a welcome diversification from the recent heavy issuance by financial sector issuers.
"There’s strong comfort when it comes to Reliance Industries. Mutual fund investors are searching for investments providing carry, especially with the rate-easing cycle nearing its end in India," said Pandya. "This deal offered a yield pickup of 75bp–80bp over what Reliance paper might offer if it were to hit the market soon, and also over comparable Triple A rated corporate bonds."
Reliance Industries raised Rs200bn from 10-year domestic bonds at 7.79% in November 2023.
Barclays, as arranger, retained a portion of the PTCs in its trading book, according to a source familiar with the deal.
Attractive rate
The pool is backed by loan receivables from DFIT, which has lent to cable network operator Jio Digital Fibre. The notes will be serviced by cashflows from monthly payments that telecoms company Reliance Jio Infocomm makes for fibre use and maintenance.
The originator's loan to DFIT charges 12% per year, payable quarterly, according to a Crisil note on September 16.
In order to comply with Indian regulations that no single borrower/obligor can account for more than 25% of the total asset pool, the PTCs were issued through multiple trusts by Sikka Ports and Jamnagar Utilities.
For the first time in India, a put option was embedded in the ABS structure. The underlying loan has a 15-year tenor but the PTCs are structured with put or buyback options at the end of three, four and five years, a second source said.
Some market participants feel other corporates can adopt this securitisation structure of bundling long-tenor loans with put options.
In October last year, HDFC raised Rs90.62bn from passthrough certificates in one of the largest securitisation transactions backed by a pool of consumer loans and assets.
Securitisation volumes in India are expected to rise to Rs2.5trn in the current financial year ending March 31 from an all-time high of Rs2.3trn in the last financial year, according to rating agency Icra.
Most of the securitisation volume in India is driven by deals originated by private sector banks and fundraising by nonbank lenders.
With mutual funds investing heavily, this deal will create strong liquidity in the market, as investors are likely to actively buy and sell these instruments, bankers said.
Crisil and CareEdge have assigned AAA (structured obligation) ratings to the PTCs of Rs80bn each issued by Siddhivinayak Securitisation Trust and Shivshakti Securitisation Trust, both originated by Sikka Ports, and Rs50bn by Radhakrishna Securitisation Trust, with Jamnagar Utilities as originator.
Reliance Group did not respond to a request for comment.