Issuers Issuers of
debt instruments can be classified into five broad categories. These are
as follows:
- Government of India and other
sovereign bodies
- Banks and Development Financial
Institutions
- PSUs
- Private sector companies
- SGovernment or quasi government
owned non-corporate entities
Government of India and
other sovereign bodies : The largest volumes of instruments
issued and traded in the debt market fall in this category. Issuers
within this category include the Government of India, various State
Governments and some statutory bodies. Instruments issued by the central
Government carry the highest credit rating because of the ability of the
Government to tax and repay its obligations.
As mentioned earlier, government of India issues T-Bills and GOISECs of
varying maturities, while state government’s issue state loans.
Apart from these, the government also issues instruments, which are
tailor-made for retail investors. These include tax-free relief bonds,
Indira Vikas Patra, Kisan Vikas Patra, etc.
As on March 31, 1999, the total value of outstanding GOISECs is about
Rs2750bn. The total value of outstanding state loans is about Rs500bn.
The incremental gross issuance for 1999-2000 is estimated at Rs840bn.
Net of repayments falling due within the year (about Rs300bn) the net
increase in the value of outstanding securities in the current year
would be about Rs540bn.
Banks and Development Financial Institutions
Instruments issued by DFIs and banks carry the highest credit ratings
amongst non-government issuers primarily because of their linkage with
the Government There is also a perception that the Government will not
allow important DFIs and banks to fail or default on their obligations.
Prominent DFI issuers include ICICI, IDBI, IFCI, IRBI, as well as some
state level DFIs like SICOM, GIIC etc. ICICI and IDBI have been the most
aggressive issuers. Virtually all banks raise CDs while prominent bond
issuers have been SBI, Bank of Baroda, Bank of India etc. Most banks
have floated issues last year in order to raise tier II capital to meet
their capital adequacy requirements.
DFIs issue 1-3 year CDs as well as longer maturity bonds. Banks mainly
issue short term CDs and they have also issued bonds from time to time
(although infrequently). For DFIs, Bonds used to originally account for
a very small part of their overall resource raising; but the picture has
changed dramatically in the past 5 years as Government has discontinued
other cheaper avenues of funds to them. For new private sector banks and
foreign banks, which do not have access to a large branch network, CDs
constitute an extremely important part of overall resource raising.
DFIs are the second largest issuer of debt instruments after the
Government and sovereign bodies. The total value of outstanding bonds
and CDs issued by DFIs is estimated at Rs1trillion while the total
outstanding value of CDs and bonds issued by scheduled commercial banks
is estimated at Rs60bn. The incremental gross issuance of bonds by DFIs
and banks is estimated at Rs320bn while the gross and net annual
issuance of CDs are estimated at Rs120bn and Rs60bn respectively.
DFIs raise bonds through public issues targeted at retail investors and
trusts. These retail issues account for about 20% of total funds raised.
Private placement of bonds with institutional investors is the main
mechanism for raising money. Privately placed bonds can be issued at any
time to any investor with the only restriction being the ceiling defined
by the shareholders of the PFI. Since these private placements happen
throughout the year, they are called on-tap bond issues.
Public Sector Undertakings (PSUs)
PSUs issue PSU bonds, which enjoy special concessions. These
concessions are indirect ie these PSU bonds are approved securities for
investment by various trusts, provident funds etc. The prominent PSU
issuers include Mahanagar Telephone Nigam Ltd. (MTNL), National Thermal
Power Corporation (NTPC), Indian Railway Finance Corporation (IRFC),
Konkan Railway Corporation (KRC), Neyveli Lignite Corporation (NLC),
Steel Authority of India (SAIL), National Hydel Power Corporation
(NHPC), HUDCO, Coal India, Rashtriya Ispat Nigam Ltd (RINL) etc. IRFC is
the fund raising arm of the Indian railways while MTNL raises funds for
itself as well as for the Department of Telecom. In addition to PSU
bonds, PSUs issue CPs like any other corporate.
The total value of PSU bonds outstanding as at March 31, 1999 is
estimated at Rs500bn with MTNL, NTPC, IRFC and SAIL being the largest
issuers. The overall issuance of PSU bonds was very high in the late
eighties and early nineties when they were the biggest issuers after the
Government of India and other sovereign bodies. However the total
issuance has declined considerably in the last 3 - 4 years.
Private sector companies
Private sector companies issue commercial papers (CPs) and short and
long term debentures. The total value of outstanding debentures issued
by private sector corporates is estimated at Rs500bn.
There were large issues of debentures by private sector companies in
the early and mid nineties. Capital investment in the private sector was
booming on the back of a strong capital market and private sector
companies were raising loans by way of debentures (among other means) in
order to meet their overall fund requirements. Sometimes, debentures
were issued together with equity issues in the form of partly
convertible debentures. Since then three developments have taken place.
Firstly, there was overall decline in the investment spending by the
private corporate sector leading to decline in demand for raising money
in all forms including this one. On the other hand the demand for top
quality debentures – ie debentures issued by top rated companies –
has increased substantially due to general flight to quality. Thirdly,
banks have been allowed to invest in private sector debentures, which is
an indirect way of giving term loans to these companies. Banks have
begun debenture investment in a big way and demand for debentures by
banks and newer investors like mutual funds have been high. These
opposing forces have resulted in a market that is stagnant at about
Rs100bn per year. Most of the debentures issued by the private sector
are privately placed with institutional investors. It is not feasible
for a typical company to have a public issue of debentures because the
cost of making a public issue is very high for amounts less than Rs5bn.
Government owned or quasi government non corporate entities
This is a new class of issuers which has emerged in the last 3 years.
The origin of these issuers lies in the inability of state governments
to execute large infrastructure projects through budgetary allocations.
Consequently, these state governments have created special purpose
vehicles (SPVs) for executing these projects. These SPVs issue
bonds/debentures. Typical maturity of the instruments ranges from 3-7
years.
The first prominent issuance of this type was made in 1993 - that of
Sardar Sarovar Narmada Nigam Ltd, a vehicle created by the Government of
Gujarat to execute the Sardar Sarovar project. Since then, Krishna
Bhagya Jala Nigam ( KBJNL), Maharashtra Krishna Valley Development
Corporation (MKVDC) , Maharashtra State Road Development Corporation
(MSRDC) etc. have come with larger and larger issues for funding such
ambitious infrastructure projects.
The credit rating of these debentures takes into account the implicit
and sometimes explicit support of the State Government and the ratings
issued are called SO rating (called supplemental obligation rating). In
effect, it is an indirect rating of the state government in question.
Most of these issues are public issues and the size of each issue is
fairly large - ranging from Rs5bn to 15bn per issue. But the actual
subscribers are largely institutional. There is a widespread belief that
the state government behind the issuance would not be willing to face
the wrath of a large number of retail investors and therefore would not
let the issuer default. Hence, these issues are perceived to be safe.
The total value of outstanding debentures from this class of issuers is
estimated at Rs150bn.
Many private developers have come forward to sponsor infrastructure
projects. We expect similar issues from such private sector
infrastructure developers in the years to come.
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