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RPT-Fitch: Tax change impact on Indian PTC ratings depends on documentation changes

Source : REUTERS
Last Updated: Fri, Jun 14, 2013 07:10 hrs

(Repeat for additional susbcribers)

June 14 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says that the recent tax amendment relating to income distributed by securitisation trusts to Indian pass-through certificates (PTCs) rated by Fitch may impact ratings if necessary changes to transactions documentation are not made. In most transactions, documentation has already been updated or already includes language covering changes in tax law.

Effective 1 June 2013, the Income-tax Act 1961 was amended so that Indian securitisation trusts are required to pay tax on income distributed to investors. Prior to the amendments, tax on income distributed by securitisation trusts was charged, and paid, at the investor level.

The amendment will result in a reduction of the scheduled interest paid, by an amount equal to the applicable tax to be paid. This will impact all 36 PTCs from 24 Indian ABS transactions rated by Fitch which are backed by commercial vehicles loans or small business loans originated by non-bank financial institutions. According to the transaction waterfalls, tax payments rank senior to payments to the PTC holders.

Fitch's ratings address the timely payment of principal and interest on each payout date in accordance with the scheduled payouts stated in the transaction documents. Any non-payment is an event of default (EoD).

Seven of the 24 transactions have existing documentation which states that expenses that arise due to tax changes will automatically reduce the payments to PTC investors. As such, Fitch expects no EoD would be triggered and as a result anticipates no rating action on such transactions.

Documentation for a further 13 transactions has been amended to incorporate the applicable tax changes. Fitch therefore does not expect an EoD will be triggered and expects no rating action on these transactions because of the tax amendments.

For the remaining four transactions, Fitch understands from transaction parties that amendments will be made to incorporate the applicable tax changes. If the amendments are not executed by the respective payout dates ranging from 17 to 20 June 2013, it will trigger a technical EoD. However, it would be up to investors whether to accelerate the transaction and enforce the underlying security. If investors choose not to accelerate payment on the transaction, the transaction will continue to run. Fitch will review the ratings if documents are not amended in a timely manner.

A full list of outstanding Fitch-rated Indian PTCs is as follows: Transactions where existing documentations have covered potential changes in tax law:

Indian Receivable Trust January 2013 A

INR3,046,735,258 Series A PTCs due February 2017: BBB-(EXP)sf; Outlook Stable

Indian Receivable Trust February 2013 A

INR2,984,772,688 Series A PTCs due March 2017: BBB-(EXP)sf; Outlook Stable

Platinum Trust February 2013-Tranche II

INR3,096,967,783 Series A PTCs due June 2017: BBB-(EXP)sf; Stable

Platinum Trust March 2013

INR1,792,539,307 Series A PTCs due August 2017: BBB-(EXP)sf; Stable

Sansar Trust March 2013 III

INR2,197,346,170 Series A PTCs due October 2017: BBB-sf; Stable

SHRI Trust - B - 2013

INR2,000,000,122 Series A PTCs due February 2017: BBB-(EXP)sf; Stable

STFCL CV Loan Trust 2012

INR703,619,008 Series A PTCs due March 2017: BBB-sf; Stable

Transactions where documentations have been updated to incorporate the changes in tax law:

Aeon Trust 2012

INR769,270,187 Series A PTCs due February 2016: BBB-sf; Outlook Stable

Aeon Trust II 2012

INR571,821,493 Series A PTCs due August 2016: BBB-sf; Outlook Stable

Aeon Trust 2013

INR879,892,083 Series A1 PTCs due March 2014: BBB-sf; Outlook Stable

INR949,461,009 Series A2 PTCs due February 2017: BBB-sf; Outlook Stable

Indian Receivable Trust January 2013 B

INR837,201,665 Series A1 PTCs due March 2014: BBB-sf; Outlook Stable

INR762,965,555 Series A2 PTCs due March 2015: BBB-sf; Outlook Stable

INR495,262,644 Series A3 PTCs due February 2017: BBB-sf; Outlook Stable

Platinum Trust 2012

INR1,017,621,813 Series A PTCs due August 2016: BBB-sf; Stable

Platinum Trust 2013

INR1,268,302,258 Series A1 PTCs due March 2014: BBB-sf; Stable

INR1,335,396,470 Series A2 PTCs due March 2015: BBB-sf; Stable

INR600,506,089 Series A3 PTCs due April 2017: BBB-sf; Stable

Small Business Trust 2012

INR1,892,716,468 Series A PTCs due September 2016: BBB-sf; Outlook Stable

Small Business Trust II 2012

INR136,087,729 Series A PTCs due January 2016: BBB-sf; Outlook Stable

Small Business Trust 2013

INR957,944,124 Series A1 PTCs due March 2014: BBB-sf; Outlook Stable

INR546,393,894 Series A2 PTCs due March 2015: BBB-sf; Outlook Stable

INR206,760,533 Series A3 PTCs due June 2017: BBB-sf; Outlook Stable

Small Operators Trust 2011

INR405,933,071 Series A2 PTCs due January 2016: BBB-sf; Outlook Stable

Small Operators Trust 2012

INR4,756,717,475 Series A2 PTCs due October 2016: BBB-sf; Outlook Stable

Small Operators Trust 2013

INR2,068,111,843 Series A1 PTCs due March 2014: BBB-sf; Outlook Stable

INR2,301,994,260 Series A2 PTCs due March 2015: BBB-sf; Outlook Stable

INR1,920,430,273 Series A3 PTCs due June 2017: BBB-sf; Outlook Stable

Small Operators Trust II 2013

INR856,782,903 Series A1 PTCs due March 2014: BBB-sf; Outlook Stable

INR955,605,057 Series A2 PTCs due March 2015: BBB-sf; Outlook Stable

INR898,462,686 Series A3 PTCs due August 2017: BBB-sf; Outlook Stable

Transactions where the documents have not been amended:

CV Loan Trust 2012

INR3,617,283,810 Series A PTCs due December 2013: BBB-sf; Outlook Stable

India Vehicle Trust - March 2012

INR904,720,828 Series A PTCs due July 2017: BBB-sf; Outlook Stable

Novo XI Trust - Chassis

INR816,537,973 Series A PTCs due February 2017: BBB-sf; Outlook Stable

STFCL CV Trust Feb 2013

INR3,815,711,745 Series A1 PTCs due July 2017: BBB-sf; Outlook Stable

INR200,826,934 Series A2 PTCs due July 2017: BBB-sf; Outlook Stable




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