­Strength of underlying structure
The structure being assessed envisages an aggregate borrowing limit of Rs. 100.00 Cr. in the form of working capital demand loan/ cash credit from the bank secured by pledge of underlying bonds and securities. The underlying securities will be government securities and corporate bonds rated AA and above within overall limit of Rs. 100.00 Cr. The bank has also stipulated differential margin for different category of securities to be purchased under this arrangement. The government securities purchased by the company will be held in a designated Constituent Subsidiary General Ledger (CSGL) Account and a joint depository participant account for corporate bonds, which will be duly pledged to the bank. The limits as sanctioned by the bank stipulates purchase of only Government securities and Corporate bonds rated AA and above. The joint holding of the account facilitates for strict monitoring at the lenders end with respect to transactions. The bank stipulates margin requirement in the range of 5 percent to 15 percent (depending on the nature of the security i.e. lowest margin for risk-free securities like G-Sec). The stipulations also include the options available to the lender in case of a margin shortfall. The securities pledged against which funding would be provided is restricted to Government securities and Corporate Bonds rated AA and above and requires its inclusion in the lenders bank pre-approved list thus providing an effective mitigation of credit risk at the initial stage of selecting securities for trade purposes. The structure further provides for shorter duration of the securities held like in case of securities outstanding in CGSL account for more than 30 days would not be reckoned while calculating drawing power. Hence, the exposure to credit risk is limited to the period the security is held and the structure facilitates for a shorter duration. Acuité believes that the structure sanctioned by the lender provides for adequate covenants to safeguard the interest of the lenders. The lenders have adequate buffers available to initiate corrective action and mitigate the risk arising out of any adverse market movements. The strict adherence to the sanctioned terms and conditions (as advised by the lender to GCPL vide letter dated February 22, 2021) is central to the rating.

Benefits emanating from association with Derivium Tradition
Genev Capital Private Limited (GCPL) is promoted by Tradition Group and Mr. Kunal Shah, Mr. Ashish Ghiya and Ms. Rita Thakur.  Mr. Kunal Shah and Mr. Ashish Ghiya are also promoters of Derivium Tradition Securities India Private Limited (DTSIPL). Tradition Group is the interdealer broking arm of Compagnie Financière Tradition and one of the world's largest interdealer brokers in over-the-counter financial and commodity related products represented in over 29 countries. Its day-to-day operations are managed by its directors Ms. Rita Thakur, Mr. Kunal Shah and Mr. Ashish Ghiya. Mr. Kunal Shah is a finance professional with over two decades of experience in debt capital markets involving credit origination, fixed income portfolio management and advisory. Mr. Ashish Ghiya is an investment banker and has over two decades of experience in Indian currency, interest rate & credit markets. Ms. Rita Thakur has over a decade of cross functional experience in Indian Debt Capital Markets across Investment Banking, Portfolio Management  Origination and Syndication of various Debt products. DTSIPL was incorporated in 2003 by Mr. Ashish Ghiya & Mr. Kunal Shah, and is a SEBI registered stock broker and a member of Bombay Stock Exchange (BSE), National Stock Exchange (NSE) & Metropolitan Stock Exchange (MSEI). DTIPL has grown from being a G-Secs & Bond intermediary to a full-fledged Investment Bank providing services across origination, intermediation, advisory and distribution. DTIPL has strong transactional relationship with more than 1300 institutional & corporate clients & FIMMDA accredited broker for OTC interest rate derivatives. It earned total operating income of Rs. 26.57 Cr. and its networth stood at Rs. 25.08 Cr. as on March 31, 2022 (provisional). Going forward, DTSIPL will be mostly focusing on its broking and investment banking services with limited trading arrangements for specific clients. The promoters floated Genev Capital Private Limited in 2018 which is functioning as a market maker and book runner for G-Secs, SDLs, Government guaranteed debt & highly rated corporate bonds on a matched principle basis. GCPL benefits from the established presence of Derivium Tradition group in the Indian capital markets and longstanding relationships with various clients. GCPL functions as an intermediary for its clients to buy and sell debt securities, both Government and private. Its network and market intelligence enable it to offer solutions to its clients which mostly comprise banks, mutual funds, insurance companies, foreign portfolio investors, provident and pension funds as well as semi institutional clients like wealth management companies, corporates, family offices. Acuité believes that Derivium Tradition group’s presence in the domestic capital market and established relationships with marquee clients and investors should support its business risk profile over the near to medium term.

Improvement in financial and operational risk profile
The established presence of Derivium Tradition group in the Indian capital markets, longstanding relationships with various clients and trade based on matched principle basis has enabled GCPL to scale up its transactional volume year-on-year basis. GCPL transactional volume in terms of total value of bonds traded increased to Rs. 29,986.31 Cr. in FY2022 from Rs. 25,638.27 Cr. in FY2021 (including transactions with DTSIPL of Rs. 2,044.59 Cr. in FY2021). GCPL also reported improvement in its earning profile with improvement in total income which stood at Rs. 38.87 Cr. in FY2022 (provisional) as compared to Rs. 26.09 Cr. in FY2021. Net Income from sale and purchase of bonds remains the major revenue source of GCPL’s revenue structure which increased to Rs. 28.96 Cr. in FY2022 (provisional) from Rs. 20.41 Cr. in FY2021.
Acuité believes that despite improvement in GCPL’s earning profile, its business operations would remain susceptible to inherent risks in capital market and overall economic environment.