Softlogic Finance in $ 4.8 m Cross Currency Swap with TCX
Wednesday, 22 January 2014 00:00
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Softlogic Finance PLC announced yesterday that it has concluded what is probably the first ever medium term Cross Currency Swap with an off-shore counterpart, when they completed a four year transaction for $ 4.8 million (Rs. 625 million) with TCX.
The transaction will enable Softlogic Finance to cover their interest rate risk exposure in respect of medium term lending products that include leasing and hire purchase contracts which form the bulk of business for the company.
TCX is a special purpose fund that provides OTC derivatives to hedge the currency and interest rate mismatch that is created in cross-border investments between international investors and local borrowers in frontier and less liquid emerging markets. Their goal is to promote long-term local currency financing, by contributing to a reduction in the market risks associated with currency mismatches. TCX is owned by global development financial institutions that include IFC, FMO, DEG, JBIC, EBRD and Proparco.
The transaction is a groundbreaking deal and the first transaction for TCX in the Sri Lankan market although TCX had engaged a number of counterparts for some time to engineer their first transaction.
Softlogic Finance had previously entered into a $ 10 million foreign currency borrowing transaction with FMO and was previously only able to hedge their foreign exchange risk and interest rate risk on a short-term basis due to the absence of medium term hedging alternatives in the local market. The transaction with TCX enabled the company to cover a fixed period of four years, thereby eliminating the mismatch and locking in the interest margins on fixed rate advances.
With the objective of sharing the approach and expertise related to such transactions, Softlogic Finance together with TCX are pleased to organise a brief seminar on “Hedging Currency Risk in Sri Lanka” an event that will deal with medium term currency hedging prospects in Sri Lanka and take place on 22 January 2014 at Earls Court, Cinnamon Lakeside, commencing at 8 a.m. The event would primarily focus on hedging liabilities that arise from foreign currency borrowings that have been undertaken by Sri Lankan entities and seek solutions that organisations like TCX may be able to provide, that in the final analysis will allow borrowers to confidently obtain foreign currency funding to fulfil their development objectives.
Softlogic Finance has been in the forefront of innovative strategies to enhance their funding capabilities and recently concluded a Rs. 1.4 billion guarantee transaction with the UK DFI GuarantCo who will provide a guarantee for debentures issued by the company that are expected to be AAA rated, probably the first such issuance in the country.
Softlogic Finance PLC Chairman Ashok Pathirage commenting on the occasion said: “We are pleased to conclude the first transaction with TCX in the market, and will continue to leverage the expertise that we have in the treasury area to enhance and develop our business.”
DFI’s that undertake financing in developing markets such as Sri Lanka require local lending institutions to maintain impeccable operating standards and adopt international best practices in order to secure these transactions and Softlogic Finance is pleased to have established its credentials in this regard.
Softlogic Finance has specialist knowledge and expertise in the SME sector, and this funding line will be utilised to develop relationships with customers who require financial assistance, to build their businesses and improve their livelihoods.
