This is the comprehensive and latest presentation on Indian Corporate Bond market. It starts with basic features, 3 Main pillars of Indian Corp bond market ecosystem & its importance. It then covers Primary Placement, Valuation/MTM as per RBI/FIMMDA norms, Valuation using excel IRR() function with example, Credit rating scales, Market timing & Reporting. It also covers few topics like ISIN & ends with challenges and Limitation of India corp bond market.

1. Indian Corporate Bond
Market – A Perspective
ABHIJEET DESHMUKH
www.abhijeetdeshmukh.com

2. Capital Requirements
Government
IndividualsCorporates

3. Corporate Capital Funding Sources
Sources
External
Equity
Debt /
Corporate Debt
Bank
Borrowings
Project Loans
Syndicated
Loans
Working Capital
Trade Finance
Bonds
Hybrid
Internal Accruals Reserves

4. Corporate Bonds - Basic Features
 Corporate Bonds are issued to the Public (similar to equity instruments)
 Listed on Stock Exchanges and traded in Secondary Markets
 are Transferable
 Can be Secured or Non-secured
 possess a Broad Base of Issuers (ranging from small companies to
conglomerates and multinationals) and investors (including retail
participants), and
 are under the additional purview of the Regulators of the Securities
Market other than the Central Bank or other Banking Supervisor.

5. Corporate Bond Market Ecosystem -
Three Main Pillars
The study of Corporate Bond Market is essentially the study of below three pillars,
their roles, responsibilities and actions in the corporate bond market.
Institutions –
Regulations & Governance
SEBI RBI
Credit Rating
Agencies
Clearing Houses
Stock Exchanges
Participants
Investor (Demand
Side)
Issuer
(Supply Side)
Securities
Debentures (Fixed
& Floating)
Securitized
Instruments
Commercial Paper
Certificate of
Deposit

6. Corporate Bond Market - Importance
 Corporate Bond market helps corporates funds at the low cost and take the
benefit of their credit rating without diluting equity.
 the corporate bond market in a country can substitute part of the bank loan
market, and is potentially able to relieve the stressed banking system in a
developing country of unbearable burden.
 When bank lending and corporate debt is more balanced in an economy, the
market gets an opportunity to assert itself, thereby providing a more effective
hedge against systemic / Market / un-diversifiable / volatility risk.
 Derivatives and Swap markets are critical for the development of corporate bond
markets. These tools broaden the investor base and lend the much needed
liquidity to the market. These instruments also play a pivotal role in reducing costs,
enhancing returns and managing risk; particularly interest rate risk

7. Corporate Bond – Primary Placement
 Bonds can be places as Public or Privately placed.
 Market is dominated by the Private Placement
 Private Placed Bonds are those where number of investors are not more than 49,
Min Investment is 25 lakhs and multiple of 10 lakhs thereafter.
 Sample Term Sheet
Years Issues Amt (in '000 cr) % of Issue Issues2 Amt (in '000 cr)3 % of Issue2
2010-11 10 9.45 4.1% 1,404 218.79 95.9%
2011-12 20 35.61 12.0% 1,953 261.28 88.0%
2012-13 20 16.98 4.5% 2,489 361.46 95.5%
2013-14 35 42.38 13.3% 1,924 276.05 86.7%
2014-15 25 9.71 2.3% 2,611 404.14 97.7%
2015-(Aug15) 3 0.80 0.4% 1,509 216.11 99.6%
Public Issues Private Placements

8. Corporate Bond – Valuation/MTM
 As per RBI Master Circular on Valuations -
“All debentures/ bonds should be valued on the YTM basis. Such debentures/ bonds may
be of different companies having different ratings. These will be valued with appropriate
mark-up over the YTM rates for Central Government Securities as put out by PDAI/
FIMMDA periodically. The mark-up will be graded according to the ratings assigned to
the debentures/ bonds by the rating agencies subject to the following: -(a) The rate used
for the YTM for rated debentures/ bonds should be at least 50 basis points above the rate
applicable to a Government of India loan of equivalent maturity.”
 The premium carried by a corporate bond over G-Secs represents the Credit Risk
or Credit Premium. If the spread shrinks it denote bearish view on yield / light
supply side / higher yield demanded by the investor for bearing the risk.
Source:
https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9027#371
http://www.fimmda.org/modules/bonds/corporate-bonds.aspx?m=btd

9. IRR() for Valuation
Stock IDBI 2015
Coupon 9.35
FV 100.00
Price 102.15
Trans. Chgs 0.30
Maturity 31/12/15
9.35% IDBI 2015
-102.15 1-Jan-10
9.35 31-Dec-10
9.35 31-Dec-11
9.35 31-Dec-12
9.35 31-Dec-13
109.35 31-Dec-14
8.80%
Last IP 1-Jan-10
Acc int 0.000
Quote 102.15
Stock IDBI 2015
Coupon 9.35
FV 100
Price 102.15
Trans. Chgs 0.3
Maturity 42369
0.0935 IDBI 2015
=-(C20+C19) 40179
9.35 40543
=(C13-C12)/365*$B$10*100 40908
9.35 41274
=(C15-C14)/365*$B$10*100 41639
=(C16-
C15)/365*$B$10*100+100 42004
=IRR(B11:B16,0.01)
Last IP 40179
Acc int =(C11-C18)/365*B10*100
Quote 102.15

10. Credit Rating Scales
 Debt instruments rated 'BBB-' and above are classified as Investment Grade ratings.

11. Market Timings & Reporting Platforms
 NSE
(http://nseindia.com/products/content/debt/corp_bonds/cbm_reporting_homepage.htm)
 BSE (http://www.bseindia.com/markets/debt/tradereport.aspx?expandable=0)
 FIMMDA – FTrac Information (http://www.fimmda.org/modules/content/?p=1030)
Market Timings & Holidays
 Market Hours are 9.30 AM to 17.30 and reporting hours are 10.00 to 17:30.
 Trades done till 17:30 but couldn’t be reported are required to be reported by 9:30 to 10
next day along with traded done post 17:30
 Either the buyer or the seller can report the trade, but the reporting party has to enter both
sides of the deal.
 The party can use an id of your choice while reporting trades preferably NDS or CCIL ID. A
confirmation email will be sent to both the email ids entered by the party.
(http://www.nseindia.com/products/content/debt/corp_bonds/mrkt_timing_holidays.htm)

12. International Securities Identification Number (ISIN)
 International securities identification number (ISIN) is a 12 character long code,
first two characters indicates Country Code as per ISO3166 (For India it is IN).
 Third letter indicates type of security which can be E, A, F, B or 9 (E – Company,
A/0 – Central Government Security, B- State Government Security, F- Mutual
Fund Unit and 9 represents Equity shares having different rights than those
represented by INE number.)
 In the remaining 9 digits last digit is check suffix suing Double Add Double
method to check the validity of the International securities identification number
(ISIN)
 INE002A01018 – ISIN of Reliance Industry
IN – India; E- Company Type; 002A-Company Serial No of Reliance;
01-Equity; 01-Issue Number; 8-Check Suffix

13. Corporate Bonds Market - Limitations (1/2)
 Economic structure is a determinant of financial structure. Since India is a predominantly
services based economy, the financial structure automatically prefers equity market
liberalization over debt market liberalization.
 the inconsistent, disorganized and overlapping institutional and regulatory framework has
been one of the primary reasons impeding the development of strong corporate debt
markets in India.
 In India, a high level of public debt (Government Bonds) crowds out corporate borrowing
by reducing the appetite of financial institutions. This increases the cost of borrowing for
corporates making bond markets an unviable source of funding
 absence of an adequately sized corporate debt market leads to an oversized banking
system in any economy. It also results in a large portion of the lending market being
excessively regulated, &without being subjected to free market forces, this becomes the
perfect breeding ground for crony capitalism, sloppy lending by banks and careless
investments by corporates.
 The average maturity in the US bond market has lengthened in the recent past and has
been upwards of 12 years since 2007 whereas average age of the bonds issued by Indian
corporations is only 5 to 7 years

14. Corporate Bonds Market - Limitations (2/2)
 RBI observes that listed corporate debt forms only 5.4 per cent of GDP significantly low
compared to other emerging economies - Malaysia(43.1), Korea (77.5) & China (13).
 the supply side issues hampering the development of corporate debt markets in India and lists
the lack of diversity in instruments & issuers. The large issuers in the corporate debt market
segment are “quasi-government” i.e. banks, public sector oil companies or government
sponsored financial institutions..
 On the equity side, management and controlling shareholders were largely in favour of equity
reforms and consequently allowed for more room for negotiation and agreement. On the debt
side, changes were necessary to bankruptcy laws, labour laws and judicial enforcement. At the
time of liberalization the base of political power in India was support of labour unions and
therefore any changes to labour or bankruptcy laws (allowing quick dismissal of labour) was
not feasible.
 Foreign borrowings have also shown a healthy growth, indicating preference for cheaper
foreign funds over costlier Indian debt markets. However, the recent depreciation in rupee
exchange rate against major currencies has tremendously increased the foreign obligations of
corporate and stressed corporate balance sheets.

15. Thank You