Financial Products

Financial Products — 1 Comment
18
Dec 10

Mortgagor and Mortgagee

Mortgage refers to promise made by the borrower of the money to the lender of money by transferring the ownership in the property of the borrower to the lender of the money. There are basically two parties to mortgage one is called mortgagor and other is mortgagee. Let’s look at both of them one by one

1. Mortgagor – Mortgagor in simple words is the borrower who has taken the loan from the lender. Mortgagor is the one who pledge the security for the debt which he or she has taken from the Mortgagee. Mortgagor will sign or authenticate the documents and give it to the Mortgagee because it is a necessary condition for be mortgage to be legally enforceable by the court of law.

2. Mortgagee – Mortgagee is one who has given the loan to the mortgagor or borrower, and for giving this loan the mortgagee demands a security from the mortgagor. By giving a security the mortgagor is in a way promising that he or she will make a repayment of the loan which he or she has taken because in the event of any default by the mortgagor, the mortgagee will sell the security in order to recover the amount which is due from the borrower or mortgagor.

Financial Products — 1 Comment
13
Dec 10

Differences between Factoring and Securitization

While both factoring and securitization involves capitalizing the receivables of the company, however there are many differences between factoring and securitization. Let’s look at some of them –

1. While factoring is arrangement between the banks and a company in which financial institution purchases the book debts of a company and pays the money to the company against receivables whereas Securitization is the process of converting illiquid assets into liquid assets by converting longer duration cash flows into shorter duration cash flows.

2. Under factoring there are two parties that is the bank and the company while under securitization there are many investors involved who invest in the securitized asset.

3. While factoring is done for short term account receivables ranging from 1 month to 6 months whereas securitization is done for long term receivables of the company.

4. While factoring is of many types and can be with or without recourse while securitization is done without recourse.

5. Since factoring involves only bank and the company there is no need for any credit rating while securitization involves many investors and therefore it is necessary to take credit rating before going for securitization of receivables.

Financial Products — No Comments
12
Dec 10

Punjab & Sind Bank IPO

After MOIL and Coal India IPO, another IPO of a government owned enterprise is opening up for subscription on December 13 2010. This time it’s a bank IPO, which is Punjab & Sind Bank IPO. Punjab & Sind Bank IPO will offer 4 crore equity shares through this initial public offering. Out of 4 crore equity shares 3.8 crore equity shares will be offered to public while rest of it is reserved for the employees of the Punjab & Sind Bank. The minimum bid lot size for Punjab & Sind Bank IPO has been fixed at 50 Equity Shares and in multiples of 50 Equity Shares.

Punjab & Sind Bank IPO will open for subscription on 13 December and it will close on December 15 for qualified institutional investors (QIB) and on December 16 for retail investors. The price band for this IPO has been fixed at between Rs 113 to Rs 120 per equity share. This initial public offering has been given an IPO Grade of 4 out of 5 from CARE Ratings indicating above average fundamentals. SBI Capital Markets Limited, Enam Securities Private Ltd and ICICI Securities Limited are the book running lead managers to the issue.

After the successful listing of coal India and tremendous subscription of MOIL public issue this one too is expected to ignite the interest of the investors. The excepted listing date of Punjab & Sind Bank IPO is on or after 26 December.

Financial Products — No Comments
9
Dec 10

Interest Rate Swap

Interest rate swap is an agreement between two parties where the two parties decides to exchange interest obligations or receipts for an agreed period of time. Under interest rate swap there is no exchange of principal, it involves only exchange of interest between two parties.

Interest rate swap is dependent on an agreed notional principal amount and is usually transacted on a fixed for floating rate basis. So for example if the borrower of a loan is worried about the rising interest rates than he or she will enter into swap agreement with other party who is willing to take that risk, that borrower will pay only predetermined rate and if interest rate rises other party will have to pay the difference of interest rate.

So if a person has taken floating rate loan at 10 percent interest rate and the interest rate rises to 12 percent then other party will pay the 2 percent difference and borrower will be at advantage in this case. However if the interest rate goes to 8 percent then the borrower will pay difference of 2 percent to other party with which the agreement of interest rate swap was entered. As one can see that interest rate swap allows you to manage interest rate risk arising out of the borrowing, however it has the risk that since this kind of swap are over the counter product, there are chances that counter party may not fulfill its contractual obligations as set out in interest rate swap.

Financial Products — No Comments
7
Dec 10

A2Z Maintenance & Engineering Services IPO

A2Z Maintenance & Engineering Services is an engineering, procurement and construction company and provides services to the power transmission and distribution sector. A2Z Maintenance & Engineering Services is coming with an IPO of an issue size Rs. 750 Crore . The company has fixed the issue price of its share between Rs. 400-410 Per Equity Share. The issue of A2Z Maintenance & Engineering Services opens on 8 December 2010 and will close on 10 December 2010. Company had made sales of Rs 1122 Crores in 2010 and profit before tax for the company stands at Rs 154 Crores.

The object of this public issue by the company is investment in three biomass based power cogeneration projects of 15 MW each in the State of Punjab, investment in five biomass-based power generation projects of 15 MW each in the State of Rajasthan and also repayment of a loan granted by L&T Infrastructure Finance Company Limited to the company. IDFC Capital, DSP Merrill Lynch, Enam Securities, ICICI Securities and SBI Capital Markets are the book running lead managers to this public offering of A2Z Maintenance & Engineering Services.

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