Assocham Bulletin - - FINANCE -

Th e Se cur i tie san d Ex­change Board of In­dia (SEBI) would soon come out with a con­sul­ta­tion pa­per on mak­ing it manda­tory for large corp orates to meet one­fourth of their fi­nanc­ing needs through bond mar­ket, as asked by the Union Bud­get FY1819, in­formed Mr. Ajay Tyagi, Chair­man of the cap­i­tal mar­kets reg­u­la­tor, while in­au­gu­rat­ing the ASSOCHAM Na­tional Con­fer­ence on Cor­po­rate Bond Mar­ket, held on July 11, 2018, in Mum­bai.

"Given the rel­a­tively nascent stage of development of bond mar­ket, such frame­work has to have a soft touch ap­proach; it would be fi­nalised in con­sul­ta­tion with stake­hold­ers", said Mr. Tyagi.

Not­ing that lot of things need tobe done for in­creas­ing liq­uid­ity in the sec­ondary mar­ket, he said that SEBI would move to­wards that di­rec­tion in con­sul­ta­tion with RBI and govern­ment. "While pri­vate place­ment of cor­po­rate bonds have shown sig­nif­i­cant up­take es­pe­cially since FY16-17 on­wards, there are gen­uine con­cerns about liq­uid­ity in the sec­ondary mar­ket."

He added that sec­ondary mar­ket prod­ucts such as in­ter­est rate fu­tures, credit de­fault, Swaps, repo and oth­ers have to be made more at­trac­tive to the par­tic­i­pants for development of sec­ondary mar­ket in cor­po­rate bonds. "The ef­forts made in development of pri­vate place­ment of bonds have to be nec­es­sar­ily com­ple­mented with in­crease in liq­uid­ity in sec­ondary mar­ket."

He also said that though rais­ing from bond mar­ket has been re­ally good for last two years but the bond yields have been tight­en­ing for the last 6-8 months due to var­i­ous fac­tors like - in­ter­est rate in­crease by US Fed­eral Re­serve and shrink­ing of their bal­ance sheet, crude oil price in­creas­ing, de­pre­ci­at­ing ru­pee and con­cerns over in­fla­tion.

"It will be in­ter­est­ing to see the trend in this year of rais­ing of cor­po­rate bonds as it has been very good in the last two years, hope­fully it should be good this year too but these con­cerns on in­creas­ing bond yields are valid and go­ing for­ward this is some­thing which will need to be watched", he said.

Mr. Tyagi added that stress in bank­ing sec­tor has helped many cor­po­rates to raise funds from the bond mar­ket and this is one of the rea­sons for in­crease in rais­ing of bonds from elec­tronic bid­ding plat­form in the re­cent years. "Clearly there is an op­por­tu­nity to' deepen the bond mar­ket amidst the pre­sent NPA cri­sis. The large ex­po­sure' of the RBI is a step in the right di­rec­tion, though ef­fec­tive­ness of the same is yet to be mea­sured."

Higher al­lo­ca­tion by in­sti­tu­tional pools of do­mes­tic sav­ings like in­surance, pen­sion and prov­i­dent fund to the cor­po­rate bond mar­ket would aid these sav­ings to earn in­cre­men­tal re­turns and gen­er­ate de­mand for cor­po­rate bonds.

"Ad­di­tion­ally as these in­sti­tu­tions are long-term in­vestors and they gen­er­ally hold the in­vest­ments till ma­tu­rity, they can act as an ideal coun­ter­part on the de­mand side to the in­fra­struc­ture com­pa­nies need­ing to rely on fund­ing through longer dated in­stru­ments", he added.

He also said that loan bond ar­bi­trage has to be re­moved

by mea­sures such as al­low­ing banks to clas­sify and re-clas­sify bond and loan as­sets into held to ma­tu­rity or avail­able for sale buck­ets, based on their de­clared in­ten­tion rather than au­to­mat­i­cally based on le­gal doc­u­men­ta­tion. has ad­dressed de­fault risk of bonds to a large ex­tent as bond hold­ers have been kept on higher pri­or­ity, there are even govern­ment dues in the liq­ui­da­tion water­fall.

"In the medium term, this would fa­cil­i­tate deep­en­ing of bond mar­ket, re­searchers should keenly watch as to in the next short to medium term, 3-5 years as to how it plays out, the im­ple­men­ta­tion of IBC, how the bond mar­ket as a per­cent­age of GDP grows, which as of now is about 17per cent", said the SEBI chief.

He noted that early set­ting up of a credit en­hance­ment fund, as an­nounced in the Bud­get FY16-17would fa­cil­i­tate rais­ing of bonds by the in­fra­struc­ture sec­tor com­pa­nies. "Other­wise, such bonds of­ten rated at BBB or even be­low that would miss the bus and would not be able to par­tic­i­pate in the bond mar­ket which re­ally will be very un­for­tu­nate be­cause it is the in­fra­struc­ture com­pa­nies which need more long-term fi­nanc­ing through bond mar­kets as com­pared to other sec­tors."

He also in­formed that SEBI has not re­ceived any de­fin­i­tive open of­fer proposal from pub­lic sec­tor in­surer Life In­surance Cor­po­ra­tion of In­dia (LIC) on its deal with state-owned lender IDBIBank.

"More play­ers (in­ex­changes) are re­quired but if eco­nom­ics dic­tate there should be con­sol­i­da­tion, so be it but we do not have any de­fin­i­tive proposal, let there be some proposal or ref­er­ence, we have no such ref­er­ence."

Amid oth­ers who ad­dressed the con­fer­ence in­cluded, Mr. Balkr­is­han Goenka, Se­nior Vice-Pres­i­dent, ASSOCHAM and Chair­man, Wel­spun Group; Ms. Navita Ya­dav, Chair­per­son, ASSOCHAM Na­tional Coun­cil for Bond Mar­ket; Mr. Ashvin Parekh, Man­ag­ing Part­ner, APAS and Mr. Ashish Ku­mar Chauhan, MD & CEO, BSE.

Mr. Ajay 1Yagi, Chair­man, SEBI in­au­gu­rat­ing the ASS :HAM Na­tional Con­fer­ence on Cor­po­rate Bond Mar­ket held in Mum­bai. Also seen (L-R) Ms Navita Ya­dav, Chair­per­son, ASSOCHAM Na­tional Coucil­for Bond Mar­ket, Mr. Ashvin Parekh, Man­ag­ing Part­ner, APAS, Mr. Ashishku­mar Chauhan, MO & CEO, BSE, Mr. Balkr­is­han Goenka, Se­nior Vice Pres­i­dent, ASSOCHAM.

Mr. Balkr­is­han Goenka, Se­nior Vice-Pres­i­dent, ASS il,M wel­com­ing Mr. Ajay Tyagi, Ch­gir­man, SEBI.

Mr. Balkr­is­han Goenka, Se­nior Vice-Pres­i­dent, ASSOCHAM in con­ver­sa­tion with Mr. Ajay Tyagi, Chair­man, SEBI.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.