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Unification of Government Security and Corporate Bond markets is an idea whose time has come, according to SEBI Chairman Ajay Tyagi.
“A unified market would enable trading of Government Securities (G-Secs) on the same platform as corporate bonds, thereby utilising common infrastructure for trading, clearing, settlement and holding of securities
“This would lead to seamless transmission of pricing information between G-Secs and corporate bonds,” said Tyagi at the ‘CRISIL 6th Bond Market Seminar.’
The SEBI chief emphasised that corporate bonds, which are generally priced on the basis of G-Secs of comparable maturity, would therefore be more appropriately priced.
The proposal would lead to economy of scope and scale, and increased liquidity for both G-Secs and Corporate Bonds, he added
This would also facilitate greater participation by retail and non-institutional investors.
Tyagi observed that the total amount mobilised from the corporate bond market this financial year till January 2021 was ₹6.54-lakh crore, which is around 22 per cent higher than the funds raised in the corresponding period last year, Tyagi said.
Outstanding corporate bonds are now around one-third of the outstanding bank credit to commercial sector, he added.
“The annual number of issuers raising capital from the corporate bond markets decreased from 368 in 2016-17 to 291 in 2019-20. As compared to this, in this financial year till January 2021, 373 issuers have raised funds from the corporate bond market,” SEBI chief said.
The majority of the issuances are by financial issuers who contributed around 65-75 per cent of amount issued during the last 5 years.
The SEBI chief noted that with pandemic-induced stress adding to the NPA (non-performing asset) woes of banks and their inherent asset-liability mismatch problem restricting their capability to fund infrastructure projects, the need for corporate bonds to finance the Government’s development agenda gets further accentuated.
The government has envisaged an investment of ₹111-lakh crore in infrastructure projects over a 5-year period under the National Infrastructure Pipeline.
Secondary market
“Talking about trading in the secondary market, though the trading volumes have witnessed growth over the years, on an absolute basis the level of liquidity is quite low with average daily turnover of around ₹8,500 crore during 2019-20 and ₹7,800 crore during 2020-21 (till January 2021).
Even within this low liquidity, 97 per cent of the trading is concentrated in bonds in the top three rating categories of AAA, AA+ and AA,” Tyagi said.
DFI
Referring to the Budget announcement regarding setting up of a professionally managed Development Financial Institution (DFI) for debt financing of infrastructure, SEBI chief said: “It is our view that the mandate of DFI should also include provision for equity financing.
“Of course, considering the huge debt financing requirements of infrastructure projects, DFI funding would need to be necessarily supplemented in a big way by direct corporate bond borrowings by such projects.”
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