By Jayen Shah, Executive Vice President & Head-Debt Capital Markets, IDFC BANK
For eternity, financial market participants have debated over the deepening of the Indian Corporate Bond Markets. The subject matter has not only been very close to my heart but at the core of my professional experience for the past 21 years. Finally, I am of the opinion thatIndian bond markets are taking off!
YTD 2016 has witnessed record volumes,over INR 400,000 crore, of bond issuances and adding public bond issues and state government securities under the UDAY scheme, the gross volume crossesINR 450,000 crore. This is a staggering number by any yardstick. Single issuance of over INR 5,000crore and tenors of 15years and longer have been successfully subscribed by investors. Wide-ranging issuers have accessed bond markets, though bulk of issuances would have been by AA or higher-rated issuers. Do note that the below discussion refers to the private placements(over 95 per cent of all issuances), both by number of issues and by volume and bonds are generically referred for non-convertible debentures.
Indian bond markets are unique in many ways. Unlike bond markets of developed economies where underwriting is an extreme rarity, in India, a large proportion of bond deals are either underwritten or bought-out by underwriter-arranger. Despite this ‘evolution’ of Indian bond market, it still needs to leapfrog in many other aspects. Reforms are warranted for- a thriving secondary market; widening access to issuers with ratings below the ‘AA’ rating handle and non-investment grade issuers; in the regulations governing investors; rationalization of issuance stamp duty; credit risk hedging markets; enforcing common market standards – to list some areas.
Bond markets provide an alternate source of financing to borrowers, some of thekey advantagesbeing-
Essential items that need to be completed by a corporate desirous of issuance, include-
Key documents that are likely to be executed,include – information memorandum (and PAS4, adhering to provisions of Companies Act, 2013), debenture trust deed (DTD), debenture trust agreement (DTA), rating letter, listing (if listed), mortgage deed or deed of hypothecation (if secured).
Issuers have a choice of either onshore or offshore bonds. Offshore bonds – in USD or EUR, etc.issued under Reg S / 144A format, listed at an offshore exchange, to international investors. RBI, in Sept 2015, permitted Indian borrowers to issue INR denominated bonds (‘Masala bonds’), of minimum 3-year tenor (lowered from 5-year), issued offshore to international investors. HDFC Ltd was the first to issue Masala Bonds.
There is visible vigour amongst regulators and government departments to implement various recommendations for deepening of the corporate bond markets. This coupled with market forces gives me confidence that corporate bond markets are taking off, finally!!