Asset Securitization

Concept & Process Note

Concept:
Asset securitisation as a product offers funds against hard assets on a non-recourse basis.
The asset owner can lease out a property, construct buildings but cannot transfer the title
via sale or gift deed for lock-in period of the securitisation as per the agreement which can
be for a period of 3 or 5 years depending upon the term sheet.

Key advantages:
 The funds received is on non re-course basis which means the fund is on non
returnable basis
 LTV of upto 80% of the property’s market value is offered as lumpsum or upto 50%
per year upto 3 years. ( Valuation of a Merchant Banker or an authorized / approved
certified valuer will only be accepted )
 There is no interest rate payable on the capital that is raised through securitization.
 The funds received don’t show up as a debt and hence is off the books
 Funds originate in Luxembourg which has a double taxation treaty with India and
hence no tax is payable in India. An AML tax complaint certificate will be issued by
CSSF Luxembourg.
 Only a reasonable setup fee is involved which includes the regulatory bodies,
merchant bankers, DD agencies, Legal firms for both country compliances and legal
contracts.

STEP 1: ISSUANCE OF TERM SHEET

Once the process clarity is given to the client and a LOI is received from the client to confirm
his participation in the Asset Securitisation Program, we shall then issue a term sheet in the
name of the client which they must sign and return back to us.

STEP 2: DUE DILIGENCE & KYC VERIFICATION

Documents Checklist:
a) Passport copy of the Client/ Authorised Representative
b) Copy of PAN Card of the Client
c) Last 03 years ITR, GSTR and balance sheets
d) Asset ownership proof, one copy each in Original and Certified true copy
e) Valuation report of the asset, if any
Post successful due diligence, consultant will submit LOI to CSSF, Luxembourg stating what
asset we want to securitise, details about the securitization transaction and methods we
want to deploy.

STEP 3: CONTRACTS AND AGREEMENTS

a. Once the term sheet is signed, Private Placement Agreement and Securitisation Contracts
are issued to the Client which is again required to be signed and submitted.
b. Parallely, we float a new securitisation vehicle that will securitise the assets of the Client
as per the term sheet and LOI submitted to CSSF.
c. Digital copies of the asset papers and ownership details of the asset being securitised will
be uploaded to secure digital locker with EU GDPR compliance.

STEP 4: SECURITISATION
a. Asset securitisation will be carried out and asset backed bonds would be underwritten to
raise funds. If third party financial collateral is required, it will be considered at this stage.
b. Post successful fund raise, funds will be held in escrow to protect asset backed bond
owners.
c. Against the funds held in escrow, the securitisation vehicle would obtain liquidity from
its investment banking partners like Goldman Sachs / PIMCO Global / J. P. Morgan Chase to
invest part of the funds in global financial markets and part of it to be given to the client
for their project requirements.

STEP 5: FUND DEPLOYMENT AND MONITORING

Post fund deployment and allocation to clients, periodic monitoring of compliances
involved, end use of funds to satisfy AML/PML requirements etc would be carried out with
reports submitted to relevant authorities from time to time or whenever required.
Hope this explains the flow of the process.

In brief the steps, process and timelines involved are as below:

1) New SPV to be formed - 5 to 7 working days
2) CSSF registration to be done.
3) Valuation report and KYC of land owner & PoA holder needs to be submitted for KPMG to
do a valuation and submit to CSSF.
3) The Valuation reports are to be submitted to the CSSF. The mandatory securitisation fee
needs to be submitted and paid to CSSF.
4) Securitisation is done on the digital documents of the property, basis the valuation report
of KPMG by PIMCO global.
5) Thereafter Goldman Sachs and PIMCO will underwrite a Bond for the value of the digital
docs and a note will be issued to merchant bankers for securitising the note and raising
capital.
6) Capital will be raised after Note issuance in the SPV.
7) Consulting Firm will be the custodian of the documents along with the main SPV owner
who is the trader.
8) Once money so transferred to the SPV we can do a trade profit agreement with the traders
company and get the capital to India.

Timelines:
1) SPV formation documentation to get ready of trader and client. - 2 days
2) SPV formation -5 days
3) securitisation Fees to be paid within 5 days.
4) Urgent Valuation 3-4 days
5) Dematerialised Bonds Underwriting 3-4 days
6) Issuance of Note to capital raising - 3 Weeks.
So for capital raising from the formation of the SPV to raising capital should be about 5-
6 weeks, if timely flow of documents, term sheets and valuation & CSSF fees are paid
on time, we follow a seamless process of executing the assignment.

Trade Platform Payout options – ( Client Earnings )

1) One-time payout of around 80%
2) Three-year payout- around 50% per year.
For any option we choose the property shall remain securitised on the platform for 3 years
which will be mentioned in the term sheet

FAQs
1) How does the client secure his margin money (securitisation fee) and his Assets with
ABC Research in India. What is the kind of domestic agreement that can be done here
before executing any international agreement?
A: ABC Research doesn’t have presence in India and cannot engage in any other agreement
separately. Securitisation charge will be created on the assets as per Luxembourg law on
the digital certified copies of the asset papers. The original remains with the asset owner.
To protect our risks and security, explicit clauses in the securitisation contract prohibit the
asset owner from selling it elsewhere. The asset owner’s asset is anyway secure after
securitisation because no one else can draw any mortgage on it. Securing of securitisation
fee is not clear to me ?? Securitisation is very much similar to IPO, in both the cases securities
are created to raise funds. To do that entities need to pay the cost of underwriting
securities. Let me know if I have understood the aspect right and able to clarify

2) Once the capital is raised, what is the tax compliance certificate which the client will
get to avoid taxation in India, which is acceptable by the IT dept here?
A: Tax exemption from the Department of Inland Revenue at Luxembourg will be applied on
behalf of the asset owner by virtue of him being co-owner in the Luxembourg based SPV.
The same certificate is valid in India as India and Luxembourg share dual taxation avoidance
agreement

3) Can we get a waiver on the collateralization charges?

A: We cannot delete the clause because that would mean no provision of securitisation fee.
Without securitisation fee, securitisation cannot happen. Legally securitisation fee is a
critical part of the contract without which securitisation cannot happen in any jurisdiction.

4) Can we highlight the returns as minimum ASSURED RETURNS will be 80% for one-year
single bullet payment and 50% for 3 years paid annually.
A: Rules and regulations of global financial market dictate that it is legally prohibited for
any financial market entity to claim or advertise “assured returns”. This signed term sheet
shall be submitted to CSSF, Luxembourg and we cannot mention anything in the term sheet
which is against law.

Fees:
A. Pre- Expenses
Mandate Signup Fee: 0.25% (one time payable at the time of signing the mandate)
Merchant Banker Asset Valuation Fee: 1% ( to be paid with submission of documents)
CSSF Securitisation + SPV fee: 2% ( to be paid with submission of documents)
Legal Fee (Domestic + International: 1% ( to be paid with submission of documents)

B. Success Fee:
As mentioned in the Mandate, the success fees is payable upon receiving the capital in the
SPV in Luxembourg.