CORPORATE BOND MARKET
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.