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Finance Management | Building a Junk-bond Market in India & its Impact on Overall Economy

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Building a Junk-bond Market in India & its Impact on Overall Economy

- by Saurabh Joshi & R. T. Sivasubramaniyan *

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4. The regulator must also define likely spreads for these bonds over treasuries as benchmark rates. Above or below at discretion of the bank. (See Annexure Benchmark Spreads FIMMDA)
5. To start with strictly banks corporates and strong financial institutions along with global institutions be allowed as market participants. Over the period of time, this could be extended to individuals, hedge-funds, mutual funds, etc.

6. Takeovers, introduction of SPV and any other leveraged buy outs would be monitored by the regulator by a regulators representative on the board of the companies involved till such time as seen fit.
7. For fallen angels, we recommend a little relaxation of rules as the lender sees fit, if there is a government directive on the same or is a Public Sector Unit.

  • High liquidity: For a highly liquid market, we suggest participation by large and experienced players such as international financial institutions and Pension Funds tie-up with domestic institutions with a maximum FII/FDI limit at 51%. This would enable strong hands, and therefore, a better and competent handling of the situation.

  • If the above are followed and return tradeoff equals the risk inclusive of defaults, we will have higher institutional participation. Also we can let Indian pension funds and post office to invest parts of their portfolio into this market.

  • Higher levels of institutional participation along with strong regulator would make spreads lower, and therefore, much more lucrative.

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    * Contributed by -
    Saurabh Joshi & R. T. Sivasubramaniyan,
    PGDM - II Finance,
    SCMHRD, Pune.

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