Indian Debt Market

Introduction Introduction
Largest components of the Financial System . Debt larger than the other financial markets in the developed world Indian debt market estimated at appx. more than $100 billion.
competitive structure , low transaction cost, safe market infrastructure, high level market heterogeneity among market participants.

Development of Debt Market

Govt. securities dominated the debt market from the 1960s 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 sector infrastructure bonds, government index bonds, corporate floating rate bonds, municipal bonds and institutional tax-free bonds

Emergence of fourth segment - Municipal Bond Market

Introduction Introduction
STRUCTURE OF SECURITIES MARKET IN INDIA
Securities Market

Equity Market

Debt Market

Derivatives Market

Government Securities Market

Corporate Debt Market

Money Market
deals in short term debt instruments

Options Market

Futures Market

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 the government. As a monetary authority,  Participates in the market through open-market operations as well as through Liquidity 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 guidelines for its issuance and also for their listing on stock exchanges. The secondary market trading is conducted as per the rules set by the SEBI.

Participants Profile in WDM

permitted to invest in treasury & corporate bonds Regulated by stock ex & SEBI have specialized debt funds such as gilt & liquid funds Issue CPs & Debentures Issue CDs, bonds. Arrange CPs for corporate. Participant in call/term/repo market for short term funding requirement.

Act as underwriter in primary market & market maker in secondary market

Issuers and Products in Debt market

Growth in WDM

Securities Profile of WDM

Process of Issuing Government Securities- Primary Market Government 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 and the 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 Market Government 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 more than one day and the sale may be closed at any time on any day.

Issue of securities in conversion of maturing treasury bills/dated securities:

Holders of treasury bills of certain specified maturities and holders of specified dated securities are provided an option to convert their holding at specified prices into new securities offered for sale. The new securities could 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

Primary Segment of Debt market

Primary Market new debt issues through prospectus, rights or private placements, BODs

Listing Criteria for Securities in WDM

Secondary Segment of Debt market - Listing

Negotiated Dealing System (NDS) 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 the instruments available on the NDS.

Secondary Segment of Debt market - Listing

Wholesale Debt Market of NSE 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 - 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. debt securities 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

Unsecured subordinated Debt

Fully Convertible Debentures (FCD) Partly Convertible Debentures (PCD)

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 or providing 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 debenture trustee 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 CREDIT RATING ISSUE PRICE MINIMUM SUBSCRIPTION COUPON RANGE Rs 100 crore, with open ended green shoe option to retain over subscription "AAA/Stable" by CRISIL Rs 10,00,000/- per Bond Rs. 1 crore and in multiples of Rs. 10 lacs thereafter 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.)

Debt/Bond Market Some Examples

INTEREST ON APPLICATION MONEY MODE OF SUBSCRIPTION At cut off coupon rate from the date of credit of application money to the REC account and upto the date prior to the deemed date of Allotment. 25% of subscription at the time of application and balance 75% in one or two calls before 31st March 2005. 18.08.2004 Only in demat form. At par at the end of 5th year from the date of allotment 7 years At par at the end of 7th year The bonds would be secured by a charge on the fixed and/ or current assets (book debts) of the Corporation 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. Proposed to be listed with NSE M/s. IDBI Trusteeship Services Ltd., Mumbai

DEEMED DATE OF ALLOTMENT ALLOTMENT PUT/CALL OPTION TENOR REDEMPTION SECURITY INTEREST PAYMENT DATE

LISTING TRUSTEE

Debt/Bond Market Some Examples

APOLLO TYRES 1993- The Company undertook modernisation, upgradation of technology installation of line balancing equipments, setting up a state of are R&D centre, and to be financed by way of a Rights issue of non convertible debentures with detachable warrants 1995- During January, the Company issued 69,69,83814% secured non-convertible debentures of Rs 150 each with one detachable warrant, in the ratio 1 NCD : 4 equity shares held.

Debt/Bond Market Rating

Proposed Debt/Right debt issue allowed only when Rating obtained from at least one credit rating agency Issuer not a defaulter for more than 6 months All ratings including unacceptable one to be disclosed All ratings obtained during 3 years preceding the public or right issue of debt for any listed security to be disclosed

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 sh holders meeting is held or 30 days prior to the date on which warrant 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 by exercising 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 stock ex 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) 961690 F 20000 27/08/2010 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. Rs. 225/One Equity Share for each Warrant. IBFSLWAR IBFSL-WARRANTS-27-08-2015 INE894F13012 1 to 27500000 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

Scrip Code roup Market Lot Date of Allotment Warrant Issue price

Warrant Exercise Price Warrant Exercise Ratio Scrip ID on BOLT System Detail Name on the Bolt System ISIN No. Distinctive numbers Warrant Exercise Period

Corporate Debt Market

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 Moody s), CARE and Fitch India.

Banks investment in unlisted non SLR securities restricted to 10% of the total investments in non SLR securities.
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