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Merger & Acquisition

Introduction

• Europe, hundreds of mergers and acquisition take place every year.

• In India, too, mergers and acquisition have become part of corporate strategy today

• While total M&A deal value was US$ 62 billion (971 deals) in 2010,

• It was US$ 54 billion (1026 deals) in 2011

• 1st 4 months of 2012 witnessed deal value of US$ 23 billion (396 deals)

Introduction • The terms ‘mergers, amalgamation, ‘acquisitions’ and ‘takeovers’ are often used interchangeably.

• However, there are differences.

• While merger means unification of two entities into one, acquisition involves one entity buying out another and absorbing the same.

• In India, in legal sense merger is known as ‘Amalgamation’.

• The amalgamations can be by merger of companies within the provisions of the Companies Act, and acquisition through takeovers. While takeovers are regulated by SEBI

Introduction • The term “amalgamation” is used when two or more companies are amalgamated or where one is merged with another or taken over by another.

• According to AS-14, “Accounting for Amalgamation”, means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies.

What is Amalgamation• Merger of one or more companies into another company

• One company survives and the others lose their existence

• The survivor is called the „Amalgamated‟ company and others are called „Amalgamating‟ companies

• Amalgamated company takes over assets & liabilities of amalgamating companies

• Consideration is paid in form of equity shares, debentures, cash or a mix of all

• Two types of amalgamations, • Merger of one with another, sometimes also referred to as absorption• Merger of two or more companies to form a new company

Merger (Amalgamations)

. Merger

A + B = BA + B = C

A + B = A

Acquisition (Takeover)• An acquisition is when both the acquiring and acquired companies are still left standing as separate entities at the end of the transaction

• Takeover is the purchase by one company of the controlling interest of another company

• Takeovers may take form of• Agreement with the majority of shareholders of the company‟s

management• Purchase of shares carrying voting powers in the open market

• Both the companies (i.e., purchaser of shares as well as the company of which the shares were being purchased) remain as such as they were before the takeover

Acquisition

. Acquisition

Friendly takeover

A + B = A + B

Hostile

takeover

A + B = A + B

Differences between Amalgamation and Takeover• Major differences between Amalgamation and Takeover

1. The amalgamating company losses its existence, but the taken-over company stays as it is

2. Amalgamation is governed by Companies Act, whereas takeover is governed by SEBI guidelines

3. Accounting procedure of amalgamation & takeover is totally different

Corporate takeovers

• Corporate takeovers were started by Swaraj Paul when he tried to takeover Escorts.

• The other major takeovers are that of Ashok Leyland by the Hindujas Shaw Wallace, Dunlop, and Falcon Tyres by the Chabbria Group

• Ceat Tyres by the Goenkas

• Consolidated Coffee by Tata Tea.

Types of Merger

1. Horizontal Merger

2. Vertical Merger

3. Conglomerate Merger

4. Concentric Merger.

Horizontal Merger

•The two companies which have merged are in the same industry, normally the market share of the new consolidated company would be larger•Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other.

Vertical Merger

• A merger between two companies producing different

goods or services for one specific finished product.

• A vertical merger occurs when two or more firms,

operating at different levels within an industry's

supply chain, merge operations.

• Most often the logic behind the merger is to increase

synergies created by merging firms that would be

more efficient operating as one.

Conglomerate Merger

A merger between firms that are involved in totally unrelated business activities.

Two types of conglomerate mergers:

1. Pure conglomerate mergers involve firms with nothing in common.

2. Mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

Conglomerate Merger

• There are many reasons for firms to want to merge, which include • Increasing market share, • Synergy and cross selling.• Merge to diversify and

• Reduce their risk exposure.

• However, if a conglomerate becomes too large as a result of acquisitions, the performance of the entire firm can suffer. This was seen during the conglomerate merger phase of the 1960s.

Concentric Merger

• In these mergers, the acquirer and the target companies are related through basic technologies, production processes or markets.

• A type of merger where two companies are in the same or related industries but do not offer the same products.

• The acquired company represents an extension of product-line, market participants or technologies of the acquirer

• In a congeneric merger, the companies may share similar distribution channels, providing synergies for the merger.

Example of Concentric MergerAn example of a congeneric merger is

• Citigroup's acquisition of Travelers Insurance. While both were in the financial services industry, they had different product lines.

Reasons for Mergers and Acquisitions

• The most common reasons for Mergers and Acquisition (M&A) are:

1. Synergistic operating economics: Synergy May be defined as follows:

• V (AB) >V(A) + V (B)

• In other words the combined value of two firms or companies shall be more than their individual value Synergy is the increase in performance of the combined firm over what the two firms are already expected or required to accomplish as independent firm

Reasons for Mergers and Acquisitions

• A good example of complimentary activities can a company may have a good networking of branches and other company may have efficient production system. Thus the merged companies will be more efficient than individual companies

2. Diversification: In case of merger between two unrelated companies would lead to reduction in business risk

• which in turn will increase the market value Normally, greater the combination of statistically independent or negatively correlated income streams of merged companies, there will be higher reduction in the business risk

Reasons for Mergers and Acquisitions3. Taxation: The provisions of set off and carry forward

of losses as per Income Tax Act may be another strong season for the merger and acquisition. Thus, there will be Tax saving or reduction in tax liability of the merged firm. Similarly, in the case of acquisition the losses of the target company will be allowed to be set off against the profits of the acquiring company

4. Growth: Merger and acquisition mode enables the firm to grow at a rate faster than the other mode of growth.The acquiring company avoids delays associated with purchasing of building, site, setting up of the plant and hiring personnel etc

Reasons for Mergers and Acquisitions5. Consolidation of Production Capacities and increasing

market power:

• Due to reduced competition, marketing power increases. Further, production capacity is increased by combined of two or more plants.

Demerger

• In “Demerger”, a division of a company is transferred to

a newly-formed company or an existing company

• The transferor is called a “Demerged” company and the

transferee is called a “Resulting” company

• Both the demerged company and resulting company

retain their existence after demerger

• Consideration is paid by allotment of shares of resulting

company to the shareholders of the demerged company

Acquisition

Acquisition: This refers to the purchase of controlling

interest by one company in the share capital of an existing

company. This may be by:

• An agreement with majority holder of Interest.

• Purchase of new shares by private agreement.

• Purchase of shares in open market (open offer)

• Acquisition of share capital of a company by means of cash,

issuance of shares.

• Making a buyout offer to general body of shareholders

Top Acquisitions

Rank Year Purchaser PurchasedTransaction value

(in mil. USD)

1 2000America Online Inc.

(AOL)Time Warner 164,747

2 2000Glaxo Wellcome

Plc.

SmithKline

Beecham Plc.75,961

3 2004Royal Dutch

Petroleum Co.

Shell Transport &

Trading Co74,559

4 2006 AT&T Inc.BellSouth

Corporation72,671

5 2001Comcast

Corporation

AT&T Broadband &

Internet Svcs72,041

6 2004Sanofi-Synthelabo

SAAventis SA 60,243

7 2000

Spin-off: Nortel

Networks

Corporation

59,974

8 2002 Pfizer Inc.Pharmacia

Corporation59,515

9 2004JP Morgan Chase &

CoBank One Corp 58,761

Takeover• Takeover: Normally acquisitions are made friendly, however

when the process of acquisition is unfriendly (i.e., hostile)

such acquisition is referred to as ‘takeover’.

• Hostile takeover arises when the Board of Directors of the

acquiring company decide to approach the shareholders of the

target company directly through a Public Announcement

(Tender Offer) to buy their shares.

Takeover might be :

Hostile Takeover

A takeover attempt that is strongly resisted by the target firm

Friendly Takeover

Target company's management and board of directors agree to a merger or acquisition by another company.

WHY SHOULD FIRMS TAKEOVER?

• To gain opportunities of market growth more quickly than through internal means

• To seek to gain benefits from economies of scale

• To seek to gain a more dominant position in a national or global market

• To acquire the skills or strengths of another firm to complement the existing business

• To acquire a speedy access to revenue streams that it would be difficult to build through normal internal growth

• To diversify its product or service range to protect itself against downturns in its core markets

KNIGHTS AND SQUIRES

• In the case of a hostile takeover, the firm making the bid can bereferred to as a 'black knight'.

• ‘White knight' is a firm that may enter the fray as a 'friendly'bidder.

• A 'grey knight' is a third firm that is not welcomed by the 'victim',seeking to exploit the situation to their own advantage.

• ‘Yellow knight' is a firm who originally seeks to launch a hostiletakeover bid but then moderates its stance and negotiates on thebasis of a merger.

• ‘White squires‘ is a firm which may not be big enough to be able totake control of another firm but may well seek to buy into the'victim' firm to prevent the 'black knight' from being able toachieve its takeover plans.

Defense mechanisms• Defense mechanisms available to target company like • White knight, • Gray knight, • white squire, • Poison put, • Poison pill, • Golden parachute, • Crown jewels,

• Green mail, • Black mail, • Share buy back, • Going private, • Packman strategy, • Stand still agreement

Poison Pills

• The logic behind the pill is to dilute the targeting company’sstocks in the company so much that bidder never manages toachieve an important part of the company without the consensusof the board and thus loses both time and money on theirinvestment.• Flip-over pill

• Flip-in pill

• A typical pill is triggered when any individual or group acquiresor offers to acquire X percent of the company’s voting stock.The pill gives every other shareholder the right to buy additionalshare for a nominal sum of money.

Poison Pills

• Consider for example, a company with 100 million sharesselling at $50 each. Someone buys 15 million shares for $750million. She owns 15 percent of the company, for a short whileanyway. The pill is triggered and holders of the other 85 millionshares get the right to buy 85 million newly issued shares for$850. With 185 million shares outstanding, the price per share isnow $27(suppose) instead of $50. The acquirer’s 15 millionshares are worth only $405 million versus the $750 million shepaid, and she only has 8 percent of the voting shares instead of15 percent. Other shareholders gain, they now have two $27shares instead of one $50 share, and slightly increased votingrights as well.

Poison Pills

• A flip-over pill issues rights. These rights are only triggered and set in motion when 100 per cent of the firms’ shares have been bought.

• Right to buy the acquiring companies’ shares for a discounted price in the event of a total merger or acquisition.

Poison Pills

• Using such rights is advantageous because of its raise in debt to the shareholders as an affect of the rights.

• Increasing the debt means to raise the risk of the company’s financial leverage and thus seen as very unattractive

• One major drawback regarding the flip-over pill is that its actions are only made accessible when the company is acquired 100 per cent. This gives the bidder a loophole by gaining control of the company but not acquiring it fully .

Golden Parachutes

• Golden Parachute as a defense strategy is a special andlucrative package

• The defense strategy sets in motion as soon as theacquiring firm has acquired a specific amount.

• The Golden Parachute’s primary function in a hostiletakeover is to align incentives between shareholders andthe executives of the target company as there generallyare concerns about executives who face a hostiletakeover while risking losing their jobs, oppose the bideven when it increases the value for shareholders.

• Implementing a golden parachute defense strategy couldpotentially help stagger and make a hostile takeover moreexpensive, though only to a certain degree.

Insurance

• The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.

• Purpose:-

• To safe guard the interest of insured, setting the norms for carrying out the business of insurance smoothly, Minimizing disputes

IMPORTANCE OF INSURANCE

• Provides protection against occurrence of uncertain events.

• Device for eliminating risks and sharing losses.

• Co-operative method of spreading risks.

• Facilitates international trade.

• Serves as an agency of capital formation.

• Financial support.

• Medical support.

• Source of employment.

Types of Insurance

Life insurance

• Life insurance is a contract between the policy owner and the insurer,

• where the insurer agrees to reimburse the occurrence of the insured individual's death or other event such as terminal illness or critical illness.

• The insured agrees to pay the cost in terms of insurance premium for the service. Specific exclusions are often written in the contract to limit the liability of the insurer, for example claims related to suicide, fraud, war, riot and civil commotion is not covered.

General insurance

• Insuring anything other than human life is called general insurance.

• Examples are insuring property like house and belongings against fireand theft or vehicles against accidental damage or theft. Injury due toaccident or hospitalisation for illness and surgery can also be insured.Your liabilities to others arising out of the law can also be insured andis compulsory in some cases like motor third party insurance

Fire insurance

• Insurance that is used to cover damage to a property caused by fire. Fire insurance is a specialized form of insurance beyond property insurance, and is designed to cover the cost of replacement, reconstruction or repair beyond what is covered by the property insurance policy. Policies cover damage to the building itself, and may also cover damage to nearby structures, personal property and expenses associated with not being able to live in or use the property if it is damaged.

Health insurance

• A type of insurance coverage that pays for medical and surgicalexpenses that are incurred by the insured. Health insurance can eitherreimburse the insured for expenses incurred from illness or injury orpay the care provider directly. Health insurance is often included inemployer benefit packages as a means of enticing quality employees.

Marine Insurance

• Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred

PRINCIPLES OF INSURANCE

• Principle of Insurable interest.

• Principle of Utmost Good Faith.

• Principle of Indemnity.

• Principle of Subrogation.

• Principle of Contribution.

• Principle of Causa Proxima.

• Principle of Mitigation of Loss.

PRINCIPLES OF INSURANCE• Principle of Utmost Good Faith.

• “Each party to the proposed contract is legally obliged to disclose to the other allinformation which can influence the others decision to enter the contract”

• Principle of Subrogation.

• Subrogation means substituting one creditor for another.

• Mr. John insures his house for $ 1 million. The house is totally destroyedby the negligence of his neighbour Mr.Tom. The insurance company shallsettle the claim of Mr. John for $ 1 million. At the same time, it can file alaw suit against Mr.Tom for $ 1.2 million, the market value of the house.If insurance company wins the case and collects $ 1.2 million from Mr.Tom, then the insurance company will retain $ 1 million (which it hasalready paid to Mr. John) plus other expenses such as court fees. Thebalance amount, if any will be given to Mr. John, the insured.

PRINCIPLES OF INSURANCE

• PRINCIPLE OF INSURABLE INTEREST• One of the essential ingredients of an Insurance contract is that the insured

must have an insurable interest in the subject matter of the contract

• There are four essential components of Insurable Interests

• There must be some property, right, interest, life, limb or potential liability capable of being insured

• Any of these above i.e. property, right, interest etc. must be the subject matter of Insurance

• The insured must stand in a formal or legal relationship with the subject matter of the Insurance

• The relationship between the insured and the subject matter must be recognized by law

PRINCIPLES OF INSURANCE• Principle of Indemnity.

• “Financial compensation sufficient to place the insured in the same financial position

after a loss as he enjoyed immediately before the loss occurred.”

• Principle of Contribution.

• An individual may have more than one policy on the same property and in case there

was a loss and he were to claim from all the Insurers then he would be obviously

making a profit out of the loss which is against the principle of Indemnity. To prevent

such a situation the principle of contribution has been evolved under common law.

• “Right of Insurers who have paid a loss to recover a proportionate amount from other

Insurers who are also liable for the same loss”.

PRINCIPLES OF INSURANCE

• Principle of Causa Proxima.• The Principle of Proximate (i.e Nearest) Cause, means when a loss is

caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer.

• If the proximate cause is the one which is insured against, the insurance company is bound to pay.

• A cargo ship's base was punctured due to rats and so sea water entered and cargo was damaged. Here there are two causes for the damage of the cargo ship - (i) The cargo ship getting punctured beacuse of rats, and (ii) The sea water entering ship through puncture. The risk of sea water is insured but the first cause is not. The nearest cause of damage is sea water which is insured and therefore the insurer must pay the compensation.

PRINCIPLES OF INSURANCE

• However, in case of life insurance, the principle of CausaProxima does not apply. Whatever may be the reason ofdeath (whether a natural death or an unnatural death) theinsurer is liable to pay the amount of insurance.

• Principle of Mitigation of Loss.• According to the Principle of Loss Minimization, insured must always

try his level best to minimize the loss of his insured property

• The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario

REGULATIONS OF INSURANCE BY IRDA

• Deposits.

• Investments.

• Valuation Of Assets.

• Submission of Returns.

• Insurance Advertisements.

• Foreign Exchange laws.

Life Insurance

• Life Insurance

• Insurance began as a way of reducing the risk to traders, as early as 2000 BC in China and 1750 BC in Babylon.

• An early form of life insurance dates to Ancient Rome; "burial clubs" covered the cost of members' funeral expenses and assisted survivors financially

Term Insurance

Endowment Insurance

Term Insurance

• Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term.

• Term life insurance is a pure death benefit, its primary use is to provide coverage of financial responsibilities for the insured or his or her beneficiaries

• The simplest form of term life insurance is for a term of one year. The death benefit would be paid by the insurance company if the insured died during the one year term, while no benefit is paid if the insured dies even one day after the last day of the one year term.

• The premium paid is then based on the expected probability of the insured dying in that one year.

Endowment policy

• An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death.

• Endowments can be cashed in early (or surrendered) and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it.

• Unit-linked endowments are investments where the premium is invested in units of a unitised insurance fund.

Difference between Endowment and term

Term Insurance Endowment Insurance

Term insurance plans only provide protection for the

term specified in the policy document

Endowment insurance plans provide protection along

with an investment opportunity

They offer just the death benefits They offer death as well as maturity benefits

For the same sum assured, the premium charged by

term insurance plans is much less than the endowment

plans

The premiums payable for endowment plans are more

expensive than term plans

Premium Determination

• Whatever be the insurance: life, accident, fire etc premium iscollected from each and every policy holder.

• To determine the premium use of probability is verycommon, for example life insurance policy is based upon theprobability that the policy holder will die while insurance isin effect.

• To determine the probability that the policy holder willsurvive or die during the policy the insurance company makeuse of mortality tables.

• These table are companies specific and separately for maleand female

Premium Determination

• Example:Mr Ram is 27 year old and he buys a 10 yearendownment policy which will fetch Rs.1000. Assuming 8%interest rate and no other charges. Calculate premium?

• Premium = P.V of 1000 * L37/L27

•1000

(1.08)10 ∗94589219640922

• 454.454545

Premium Determination• Consider last example where we had to find the premium a 27

year old person should pay to get a policy amount of Rs 1000after 10 years using 8% interest P.A.

• Please calculate premium if policy amount is also payable tohim or his beneficiary on his death.

• P = 1000 d27 + 1000 d28

1(1.08)

+ 1000 d29

1(1.08)2 +

1000 d30

1(1.08)3

+ 1000 d31

1(1.08)4 + 1000 d32

1(1.08)5

+

1000 d33

1(1.08)6

+ 1000 d34

1(1.08)7 + 1000 d35

1(1.08)8

+

1000 d36

1(1.08)9

+ 1000L37L27

∗1

(1.08)10

Premium Determination• P = 1000 (

164869640922

+16362

9640922*

1

(1.08)+

165269640922

*

1(1.08)2 +

167859640922

*1

(1.08)3+

172359640922

*1

(1.08)4 +

178739640922

*1

(1.08)5+

186029640922

*1

(1.08)6+

195189640922

*

1(1.08)7 +

206189640922

*1

(1.08)8+

219969640922

*1

(1.08)9+

94589219640922

∗1

(1.08)10)

• 468.16

Securitization

• Introduction: Securitization is the process through which an issuerpools several types of financial assets and sells the repackagedinstruments to Investors

• The repackaged instruments can be

• Bonds Through Certificates (PTCs),

• Collateralized Mortgage Obligations (CMOs) consolidated throughthe pooling of contractual debt such as mortgages (residential andcommercial),

• Auto loans and

• Credit card debt obligations.

Securitization

• Securities which are backed by mortgages are known asMortgage Backed Securities (MBS)

• While the ones backed by other types of receivables areknown as Asset Backed Securities (ABS).

• Other instruments used are Collateralized Debt Obligations(CDOs) and Loan Sell Off (LSO) issuances

History of Securitization

• Securitization in its present form originated in mortgage

markets of USA in 1970

• In India, first securitization deal dates back to 1990 when

Citibank secured auto loans and sold to the GIC Mutual Fund

WHAT CAN BE SECURITIZED

All sorts of assets are securitized:

• Auto loans

• Student loans

• Mortgages

• Credit card receivables

• Lease payments

• Accounts receivable.

Primary players in the securitization

• Originators – The parties, such as mortgage lenders and banks, that

initially create the assets to be securitized.

• Aggregator – Purchases assets of a similar type from one or more

originators to form the pool of assets to be securitized.

• Depositor – Creates the Special Purpose Vehicle for the securitized

transaction. The depositor acquires the pooled assets from the

aggregator and in turn deposits them into the Special Purpose

Vehicle (SPV).

Primary players in the securitization

• Issuer – Acquires the pooled assets and issues the certificates to

eventually be sold to the investors.

• Underwriter – Usually an investment bank, purchases all of the

SPV’s certificates from the depositor with the responsibility of

offering to them for sale to the ultimate Investors. The money paid

by the underwriter to the depositor is then transferred from the

depositor to the aggregator to the originator as the purchase price

for the pooled assets.

Primary players in the securitization

• Investors – Purchase the Special Purpose Vehicle’s issued

certificates. Each investor is entitled to receive monthly

payments of principal and interest from the Special Purpose

Vehicle.

• Trustee – The party appointed to oversee the issuing Special

Purpose Vehicle and protect the investors’ interests by

calculating the cash flows from the pooled assets and by

remitting the SPV’s net revenues to the Investors as returns.

Primary players in the securitization

• Servicer – The party that collects the money due from the

borrowers under each individual loan in the asset pool. The

servicer remits the collected funds to the Trustee for distribution

to the investors.

• Credit Enhancers - Possibly a bank, surety company, or insurer,

who provides credit support through a letter of credit, guarantee,

or other assurance.

• Rating Agency – The party that assesses credit quality of certain

types of instruments and assigns a credit rating

Special Purpose Vehicle or SPV

• The issuer is usually a company that has been specially set up

for the purpose of the securitization and is known as a special

purpose vehicle or SPV

• The creation of an SPV ensures that the underlying asset pool is

held separate from the other assets of the originator.

• This is done so that in the event that the originator is declared

bankrupt or insolvent, the assets that have been transferred to

the SPV will not be affected.

Special Purpose Vehicle or SPV

• The process of structuring a securitization deal ensures that the

liability side of the SPV – the issued notes – carries lower cost

than the asset side of the SPV.

• This enables the originator to secure lower cost funding that it

would otherwise be able to obtain in the unsecured market. This

is a tremendous benefit for institutions with lower credit ratings.

SECURITIZATION PROCESS • Selection of assets by the Originator

• Packaging of pool of loans and advances (assets)

• Underwriting by underwriters.

• Assigning or selling to of assets to SPV in return for cash

• Conversion of the assets into divisible securities

• SPV sells them to investors through private stock market in return for cash

• Investors receive income and return of capital from the assets over the lifetime of the securities

• The risk on the securities owned by investors is minimized as the securitiesare collateralized by assets

• The difference between the rate of the borrowers and the return promised toinvestors is the servicing fee for originator and the SPV .

• Assets to be securitized to be homogeneous in terms of underlyingassets,maturity period ,cash flow profile

WHY ORIGINATOR SECURITIZE

•Off-balance sheet financing – remove illiquid assets.

• Improves capital structure

•Extends credit pool

•Reduces credit concentration

•Risk management by risk transfers

•Avoids interest rate risk

• Improves accounting profits

INVESTOR VIEW POINT

ADVANTAGE

• Opportunity to potentially earn a higher rate of return .

• Opportunity to invest in a specific pool of high quality credit-enhanced assets .

• Portfolio diversification .

DISADVANTAGE

• Prepayment by borrowers can lessen the earning through interest.

• Currency interest rate fluctuations which affect the floating rates on ABS.

• Maintenance obligations of the collateral are not met as given in the prospectus.

EXAMPLE OF SECURITIZATION IN INDIA

• First securitization deal in India between Citibank and GIC Mutual Fund in 1991 for Rs 160 million.

• L&T raised Rs 4,090 mln through the securitization of future lease rentals to raise capital for its power plant in 1999.

• Securitization of aircraft receivables by Jet Airways for Rs 16,000 mn in 2001 through offshore SPV.

• India’s largest securitization deal by ICICI bank of Rs 19,299 mn in 2007. The underlying asset pool was auto loan receivables

Mortgage-Backed Securities

• A mortgage-backed security (MBS) is a type of asset-backed security that is

secured by a mortgage, or more commonly a collection ("pool") of sometimes

hundreds of mortgages.

• The mortgages are sold to a group of individuals (a government agency or

investment bank) that "securitizes", or packages, the loans together into a

security that can be sold to investors.

• While a residential mortgage-backed security (RMBS) is secured by single-

family or two- to four-family real estate,

• A commercial mortgage-backed security (CMBS) is secured by commercial and

multi-family properties, such as apartment buildings, retail or office properties,

hotels, schools, industrial properties, and other commercial sites

Asset-Backed Security

• An asset-backed security (ABS) is a security whose income payments and

hence value is derived from and collateralized (or "backed") by a specified

pool of underlying assets.

• The pool of assets is typically a group of small and illiquid assets which are

unable to be sold individually

• Pooling the assets into financial instruments allows them to be sold to

general investors, a process called securitization

• An "asset-backed security" is sometimes used as an umbrella term for a type

of security backed by a pool of assets.

Asset-Backed Security (Types)

• Home equity loans

• Auto loans

• Credit card receivables

• Student loans

• Others

Last point

Generally all type of swap is done through financial

institution and charge small commission.

Last point

Generally all type of swap is done through financial

institution and charge small commission.

Last point

Generally all type of swap is done through financial

institution and charge small commission.

Last point

Generally all type of swap is done through financial

institution and charge small commission.