Indian Debt Market

8/6/2019 Indian Debt Market

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� Govt. securities dominated the debt market from the1960s to the 1990s

� Three components of debt market

± Government securities ± Public sector undertaking securities

± Corporate sector Securities

� Several new securities emerging

± Deep discount bonds, securitised debt, public sectorinfrastructure bonds, government index bonds, corporatefloating rate bonds, municipal bonds and institutional tax-freebonds

� Emergence of fourth segment - Municipal Bond Market

Development of Debt Market



IntroductionSTRUCTURE OF SECURITIES MARKET IN INDIA

Introduction

Securities Market

Equity Market Debt Market DerivativesMarket

Government

Securities

Market

Corporate

Debt

Market

Money

Market

Options

Market

Futures

Market

deals in short

term debt

instruments

deals in long term debt

instruments



Structure of the Indian Debt Market

Regulation of debt market



Regulators

RBI:

Operates both as the monetary authority and the debt manager to thegovernment.

As a monetary authority,

Participates in the market through open-market operations as well as throughLiquidity Adjustment facility (LAF) to regulate the money supply.

Regulates the bank rate and reverse repo rate

As the debt manager

issues the securities at the cheapest possible rate.

Also supervises banks and development financial institutions.

SEBI:Regulates the debt instruments listed on the stock exchanges. It issues guidelinesfor its issuance and also for their listing on stock exchanges. The secondarymarket trading is conducted as per the rules set by the SEBI.



Participants Profile in WDM

Issue CDs, bonds.

Arrange CPs for

corporate. Participantin call/term/repo

market for short term

funding requirement.

have specialized debt funds

such as gilt & liquid funds

permitted to invest in

treasury & corporate bonds Issue CPs & Debentures

Act as underwriter

in primary market &

market maker insecondary market

Regulated

by stock

ex & SEBI



Issuers and Products in Debt market



Growth in WDM



Securities Profile of WDM



Process of Issuing Government Securities- Primary

MarketGovernment issues securities through

� Auction (Dutch/ French) on price or yield basis: ± On price basis, the coupon is predetermined, then the bidders should

quote price per Rs. 100 of the face value of the security.

± On yield basis, then the coupon of the security is decided in an auction andthe security carries the same coupon till maturity.

� Pre-announced coupon rates: ± Coupon on securities is announced before the date of floatation and the

securities are issued at par.



Process of Issuing Government Securities- Primary

MarketGovernment issues securities through

� Tap sale: ± No aggregate amount is indicated in the notification in respect of the

securities sold on tap. Sale of such securities may be extended to morethan one day and the sale may be closed at any time on any day.

� Issue of securities in conversion of maturing treasurybills/dated securities: ± Holders of treasury bills of certain specified maturities and holders of

specified dated securities are provided an option to convert their holding atspecified prices into new securities offered for sale. The new securitiescould be issued on an auction/pre-announced coupon basis.



Primary Segment of Debt market

� Primary Market new debt issues through prospectus, rights or

private placements, BODs



Listing Criteria for Securities in WDM



� N egotiated Dealing System ( N DS) of RBI ± Electronic platform for negotiated trades in Government

Securities and Money Market Instruments.

± Participants (Banks, FIs, MFs, PDs) have SGL a/c with RBI

± Negotiated directly between counter parties or negotiated through brokers

± Facilitates online reporting of transactions in theinstruments available on the NDS.

Secondary Segment of Debt market - Listing



� W holesale Debt Market of N SE ± Permits only high value transactions in debt securities.

± Primarily for banks, institutional and corporate participants and intermediaries.

± All types of SLR (Government securities, T-bills etc.) and non-SLR (CPs, CDs etc.) securities are available for trading in the WDM segment of the NSE.

Secondary Segment of Debt market - Listing



Secondary Segment of Debt market - Trading

� Debt instruments traded on OTCEI, BSE AND WDM segment of NSE.

� Govt securities-Bills, bonds of PSUs, floating rate bonds, index bonds,commercial paper , etc available for trading.



Secondary Segment of Debt market

� Debt instruments traded on OTCEI, BSE AND WDM segment of NSE.

� NSE provides screen based trading through NEAT.

� BSE provide electronic trading platform for corporate & other non govt. debtsecurities through order matching system.



Emerging Bond Instruments

Some of the Bond Types

Secured / Senior Bonds

Unsecured Bonds / Debentures

Subordinated Bonds

Fixed Coupon Bonds

Floating Coupon Bonds

Hybrid Coupon Bonds

Zero Coupon Bonds

Convertible Bonds

Callable & Puttable Bonds

Perpetuals



Emerging Corporate Debt Instruments

Fully Convertible Debentures (FCD)

Partly Convertible Debentures (PCD)

Unsecured

subordinated

Debt

With warrants



Debt/Bond Market ± Main Considerations

� Any type of debt issue by listed or unlisted company

� Rights issue in form of debt instruments

� Interest rate freely determined (book building)

� Premium amount & conversion time decided by issuer

� Issue not to be made for acquisition of shares orproviding loan to any company of same group



Debt/Bond Market ± Main Considerations

� FCD above 36 months conversion period to have put &call option

� Compulsory rating if FCD/NCD/PCD above18 months

� FCD less than 18 months free from appointing debenturetrustee or creation of debenture redemption fund

� Common listing requirements as that of equity

� Listing of debt allowed before equity if rated



Debt/Bond Market ± Some Examples

RURAL ELECTRIFICATION CORPORATION LIMITED (REC) offered, for subscription, REC SECURED NON CONVERTIBLE REDEEMABLE

TAXABLE PRIORITY SECTOR BONDS, in the nature of debentures, for an

issue size Rs. 100 crore with green shoe option to retain over subscription

through book building on private placement basis.

REC Taxable Priority Sector Bonds (TPS) ± 2011(72nd Series)

INSTRUMENT AT A GLANCE

ISSUE AMOUNT Rs 100 crore, with open ended green shoe option to retain over

subscription

CREDIT RATING "AAA/Stable" by CRISIL

ISSUE PRICE Rs 10,00,000/- per Bond

MINIMUM SUBSCRIPTION Rs. 1 crore and in multiples of Rs. 10 lacs thereafter

COUPON RANGE 5.90% to 6.60% p.a. payable annually. REC shall run the Book

(The final coupon rate will be determined by the Corporation

based on commitments received from potential investors through

book building process.)




INTEREST ON APPLICATION

MONEY

At cut off coupon rate from the date of credit of

application money to the REC account and upto thedate prior to the deemed date of Allotment.

MODE OF SUBSCRIPTION 25% of subscription at the time of application and

balance 75% in one or two calls before 31st March

2005.

DEEMED DATE OF ALLOTMENT 18.08.2004

ALLOTMENT Only in demat form.

PUT/CALL OPTION At par at the end of 5th year from the date of allotment

TENOR 7 years

REDEMPTION At par at the end of 7th year

SECURITY The bonds would be secured by a charge on the fixed

and/ or current assets (book debts) of the Corporation

INTEREST PAYMENT DATE 31st March every year with First Interest payable from

the date of Allotment to 31st March 2005 on the

amounts paidup on pro-rata basis.

LISTING Proposed to be listed with NSE

TRUSTEE M/s. IDBI Trusteeship Services Ltd., Mumbai




� 1993- The Company undertook modernisation,

upgradation of technology installation of line balancing

equipments, setting up a state of are R&D centre, andto be financed by way of a Rights issue of non

convertible debentures with detachable warrants

� 1995- During January, the Company issued 69,69,838-

14% secured non-convertible debentures of Rs 150

each with one detachable warrant, in the ratio 1 NCD :

4 equity shares held.

AP

OLLO TYRES



FPO If Debt Instrument Issued

� Bonus, rights not allowed unless

± Similar benefits extended to holders of FCD/PCDs

± Reservation of shares in proportion to such

convertible part of FCDs/PCDs

± Shares so reserved may be issued at the time of conversion of such debentures on same terms on

which bonus or right issue was made



Pricing shares arising out of Warrant, Conversion

� Pricing of shares arising out of warrants or on conversion

± Priced not less than higher of following� Av of weekly high & low of closing price of related shares during 6

months or 2 weeks preceding the relevant date

± Relevant date is 30 days prior to the date on which the shholders meeting is held or 30 days prior to the date on whichwarrant holders become entitled to apply for said shares

± 25% of price fixed becomes payable for warrant on allotment

� To be adjusted against price payable subsequently for acquiring shares byexercising the option

� Forefeited if option not exercised



Listing of Warrants Along with NCDs

� Issuer is a listed Company

� Issued as combined offering of NCDs

� NCDs & Warrants to be traded in min lot of Rs 1 lakh

� Application to be given to SEBI through designated stockex of listed company



Listing of Warrants Along with NCDs ± India Bulls

Warrants 2,75,00,000 Warrants allotted to QIBs

on Qualified Institutions Placement

basis (QIBs)

Scrip Code 961690

roup F

Market Lot 20000

Date of Allotment 27/08/2010

Warrant Issue price Rs.5/-. Warrant Issue Price will not be

adjusted towards the Warrant Exercise

Price, if a Warrant is exercised. If a

Warrant lapses, the Warrant Issue

Price will stand forfeited.

Warrant Exercise Price Rs. 225/-

Warrant Exercise Ratio One Equity Share for each Warrant.

Scrip ID on BOLT System IBFSLWAR

Detail Name on the Bolt System IBFSL-WARRANTS-27-08-2015

ISIN No. INE894F13012

Distinctive numbers 1 to 27500000

Warrant Exercise Period The Warrants may be exercised at any

time during normal business hours on

and after August 28, 2010 up to 5:00

p.m. in New Delhi on August 27, 2015



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� Less deep than Equity markets contrary to world markets

� Liquidity mainly in Govt. securities and highly rated corporate

papers (AAA and AA)

� Primarily an OTC Market

� Listed corporate debt market ± Listed market underdeveloped

± Listed debt markets are also regulated by SEBI

± Listing requirements

� Rating must for listing of debt� Credit Rating Agencies Crisil (alliance with S&P), ICRA (alliance with Moodys),

CARE and Fitch India.

� Banks investment in unlisted non SLR securities restricted to 10%

of the total investments in non SLR securities.

Corporate Debt Market

Indian Debt Market

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