Pre-Tax Average Expected Net Yield (p.a.)*
|Liquid Gold Series 3 – Dec 2020||8%|
|Bank Fixed Deposits (3 year)||5% - 5.5%|
|Corporate Bond Funds||4% – 4.5%|
|Arbitrage Funds||2.8% - 3.5%|
|Ultra Short Term Funds||3% - 3.5%|
|Liquid Funds||2.8% - 3.2%|
Higher Return PotentialEarn higher returns than Bank Fixed Deposits
Regular IncomeMonthly coupon payouts @ 7.72% p.a. made to PTC holders
Higher Level of SafetyUnderlying gold loans are backed by highly liquid collateral (gold jewellery)
Bankruptcy RemotePTC Investor is not threatened by unlikely default or even bankruptcy of the originator as the loans are sold to a third party
Easy to investIIFL account holders can invest online with their demat account
|Instrument||Pass through Certificate (PTC) Series A|
|Trust Name||Liquid Gold Series 3 - Dec 2020|
|Servicer||IIFL Finance Ltd.|
|Trustee||Catalyst Trusteeship Ltd|
|Credit Rating||ICRA AA (SO)|
|Face Value of PTC||INR 100,000|
|Minimum Investment||INR 100,000 (1 unit)|
|Yield (XIRR)||8% per annum|
|Primary Issue Closing Date||17th December, 2020|
|Legal Final Maturity||20th December, 2023|
|Underlying Receivables||Principal, interest and all other receivables on 81,883 gold loan contracts (current pool) along with the underlying security and any follow-on pools|
|Payout Date||20th of every month till maturity and if such day is not a business day, the immediately succeeding business day|
These are fixed income instruments issued on securitised pool of loans. Securitisation is homogenous pooling of various types of debts such as gold loan, home loan, residential mortgages, auto loans, etc. It converts illiquid loans into marketable securities and is regulated and governed by RBI under the provisions of the 2006 and 2012 guidelines on Securitization of Standard Assets. A PTC holder gets receivable (interest + principle) of the securitised pooled loans in its favour.
Gold PTC is securitization of gold loans from a selected pool of borrowers and creation of a fixed income instrument on underlying gold loan receivables. Each Pass Through Certificate (PTC) represents a proportionate undivided beneficial interest in the underlying pool of receivables (along with security interests in relation thereto) arising from loans extended to the borrowers against gold jewellery extended by IIFL Finance Limited, in the ordinary course of business.
Under this process, the specified assets are moved from the balance sheet of the originator (in this case IIFL Finance) and sold to a trustee company, which holds the security in trust for investors. The trustee company in this case is a special-purpose vehicle (SPV) and is the legal owner of the underlying assets. These assets are then repackaged as tradeable securities backed by the pooled assets and sold to investors as Pass Through Certificates, which represent claims on incoming cashflows from such pooled assets. The issuance of securitized debt is governed under SEBI Public offer and listing of securitised debt instruments regulations, 2008.
Some of the key benefits of Securitisation are:
% of Pool Principal
|Overcollateralization||Against a pool, PTC Series A of INR 500cr are issued to investors. The additional principal of INR 50cr (10% of the PTC pool) is subordinated to the PTC payouts and acts as a source of credit enhancement in the transaction.||10%|
|Excess Interest Spread (EIS)||Difference between Pool Interest and PTC Interest. After the promised interest payout (8% p.a.) to the PTCs, the excess collection would be utilized to accelerate the amortization of the PTCs.||6%|
|Cash Collateral||The Originator will provide first loss credit enhancement (cash collateral) in the form of fixed deposit maintained with a Designated Bank. The cash collateral is 6.6% of the PTC pool principal (amounting to Rs. 33 crore). In the event of shortfall in meeting the promised PTC Payouts during any month, the cash collateral will be used to meet such shortfall.||6.6%|
So the originator takes the first 16% loss accrued to the pool. Historically, the NPAs of the IIFL gold loan book have never been above 1%.
The product is structured into two periods:
Replenishment Period – 1st to 26th month
Amortization period – 27th to 36th month
During the replenishment period, interest received from the pool will be used to pay coupon to the PTC holders. Principal collection from the pool will be used to replenish the trust with new gold loans to ensure a security cover of 1.1x of the outstanding amount. If a trigger event occurs, the principal cashflows will be paid out to the PTC holder and will not be used to acquire additional gold loan receivables.
Post the replenishment period (first 26 months), all principal repayment / prepayment received from the pool, after meeting the promised interest payout to PTC investors, will be paid out to the PTC holders as principal repayments. However, the principal is ‘promised’ to the investors only on the legal final maturity date of the transaction.
The instrument is held in Demat mode and is Transferrable. Further, the securities are proposed to be listed on BSE. We will assist the PTC holders in exiting by finding another buyer. This will be done on a best effort basis.
A prospective investor must qualify under any of the following categories:
Resident Individuals/Hindu Undivided Family/ Trust/ Limited Liability Partnerships/ Partnership Firm(s)/ Portfolio Managers and Foreign Institutional Investors (FII) registered with SEBI/ Association of Persons/ Companies and Bodies Corporate including Public Sector Undertakings / Commercial Banks/ Regional Rural Banks / Financial Institutions / Mutual Funds / Insurance Companies/ Alternative Investment Funds (AIF) and any other prospective investor eligible to subscribe to the PTCs under applicable laws.
No, NRIs are not allowed to invest in PTCs.
TDS would be deducted under section 194 LBC (1) by the securitization trust on the amount paid or credited as under:
Further to the press release issued by the Ministry of Finance on 13th May, 2020, the rates of TDS on certain non-salaried specified payments made to residents has been reduced by 25% for the period from 14th May, 2020 to 31st March, 2021. As a result, the revised TDS rates under 194LBC (1) are as below:
No, Form 15G/H is not accepted in case of Securitisation trust payouts. Investor has to submit a letter from the Income tax assessing officer mentioning the reduced rate of TDS.
The underlying loan pool consists of 81,883 contracts with an average ticket size of Rs. 71,500 and average current LTV ratio of 69.73%. The average seasoning of the loan is 4.21 months. The pool is diversified across various geographies in India with the top concentration in Gujarat at 20.2%. The borrowers have taken loan for various purposes such as Business, Agriculture, Consumption, Domestic appliances etc. with the largest being for business purpose. Please refer the rating rationale by ICRA for further details.
Pools of receivables that meet certain pre-specified eligibility criteria will be purchased every month during the replenishment period. Within the revolving period and unless a Trigger event has occurred, the principal collections including part prepayment / foreclosures will be used to purchase the additional or further receivables from the Originator to maintain the required asset cover of 1.1 times.
More than the Credit worthiness of the borrowers, it is important to understand that the underlying loan is collateralized with maximum LTV of 75%. In case of any default or delay in interest/principal repayment within a specified period of time, the NBFC has the right to sell the gold held as collateral and recover the principal amount and interest thereupon.
If any Trigger Event occurs, then the tenure of the PTCs shall be reduced and be equal to the balance tenure of the Identified Receivables, then held by the Trust, plus an additional period of 2 (Two) month. A trigger event shall occur if: