Securitization structure by Northern Arc allows CredAble’s vendors, including MSMEs, to discount their invoices and bridge working capital gap
- Listed and rated security backed by invoice receivables and issued under SEBI guidelines
- Allows capital market investors to invest in ‘invoice discounting’ and take indirect exposure to high quality corporates to whom underlying invoices have been raised
Bengaluru, 2nd March, 2020: The ongoing financial crisis is no secret. Pointing out at the delayed payments and consequential cash flow gap in the MSME sector and proposing necessary amendments in the existing regulations, Finance Minister Nirmala Sitharaman, in the 2020 budget quoted, “…enable NBFCs to extend invoice financing to the MSMEs through TReDS, thereby enhancing their economic and financial sustainability.”
Further to ensure sufficient supply chain liquidity cushion & optimal working capital CredAble – a Supply Chain Financing FinTech Platform and NBFC has announced closure of India’s first invoice backed securitisation transaction with NBFC Northern Arc Capital.
As invoice financing is one of the oldest financial products and has traditionally been dominated by banks and a few NBFCs, capital market investors including asset management funds have not been able to access this multi-trillion INR market, primarily due to lack of an eligible instrument. CredAble with Northern Arc has addressed this issue by creating a listed instrument which can be subscribed by investors.
The product works in a manner that under the transaction discounted invoices that are raised to large anchors (buyers) by the vendors (suppliers) on CredAble’s platform are then assigned as invoice receivables to the securitisation trust. An important risk mitigant in the transaction is money due from the anchors is escrowed to minimise commingling of funds. The transaction also has a ramp up feature under which the invoice cash-flows can be reinvested to purchase a fresh set of invoices that meet predefined eligibility criteria. The transaction size of INR 150 million and the senior tranche is awarded the highest possible short-term rating A1+ (SO) by the rating agency.
Mr. Nirav Choksi, Co-Founder & Chief Executive Officer of CredAble says, “CredAble has a vision to enable large scale liquidity programs for enterprise clients partnering with the entire financial ecosystem including capital markets and we are pleased and elated to have associated with Northern Arc in enabling this historic transaction. This is a huge step towards fulfilling that vision. The structure will open the short-term supply chain financing asset class to capital market investors, as well as non-traditional investors, UHNIs and FPIs. We now have potential to unlock working capital for the entire value chain of our enterprise clients, on both the payables and receivables side – covering suppliers, sub-vendors of their suppliers, distributors, dealers and retailers. ”
Ms. Kshama Fernandes, Managing Director and Chief Executive Officer of Northern Arc Capital said, “We are delighted to partner with CredAble for the structuring of this landmark transaction. The structure will allow corporates to access the securitisation market which has so far been mostly dominated by NBFCs. As part of the transaction we have extended our very successful MOSEC™ platform to non-financial entities as well. This was also the first time we structured a ramp-up based MOSEC™”
Commenting on the available liquidity of funds in NBFCs & FinTechs, Mr. Choksi, further added that, “NBFCs & FinTechs are playing an important role in the economy and this association will serve to boost liquidity available to supply chains and strengthen CredAble’s ability to provide liquidity solutions to our corporate clientele and their vendors.”
In addition to its online platforms for invoice acceleration, that cover both payables and receivables for large enterprise clients, CredAble has also pioneered the “Just-in-Time” financing program that allows suppliers of large corporates to receive payment at a pre-invoice stage, based on certain delivery/service milestones that are tracked by CredAble’s technology in real-time. Whereas, Northern Arc Capital has pioneered several innovative and revolutionary structures in the Indian market including the Persistent Securitisation transaction (PERSEC™), Covered Bond (COBON™), Multi-Originator Securitisation (MosecTM) and the Single Issuer Partially Credit Enhanced (SPiCETM) Bond.
