Review of factors constraining the development of Indian corporate bond markets

2015 ◽  
Vol 7 (4) ◽  
pp. 429-444 ◽  
Author(s):  
Shagun Thukral ◽  
Sharada Sridhar ◽  
Medha Shriram Joshi
Keyword(s):  
Central Bank ◽  
Sovereign Debt ◽  
Action Plan ◽  
Corporate Bond ◽  
Corporate Debt ◽  
Expert Committee ◽  
Bond Markets ◽  
Content Type ◽  
Debt Market ◽  
The Government

Purpose – The paper aims to understand the factors that have limited the development of this market in India. With a conservative bank-based economy in the backdrop and with the Central Bank pulling the strings, the sovereign debt market occupies the most space in the bonds universe of India. The latter and almost minuscule portion of this market is occupied by the corporate and industrial houses that have forayed into the market to raise finances. This has led to a cycle where lack of participation leads to lack of liquidity and underdeveloped rating mechanisms which further pressurizes the development of this market in India. Design/methodology/approach – The paper is designed as a literature review which has attempted to identify the commonly agreed upon factors that have constrained the development of Corporate Bond markets in India especially and some other emerging economies who are successful or unsuccessful in their attempt to establish a corporate bond markets. These factors have then been categorized into broader heads and commented upon as a part of the analysis. Findings – Corporate bond markets in India, although steadily progressing, is still impeded by the nature of the market itself. While the necessary steps have been taken to implement some of the recommendations by the Expert Committee, the response solicited has not quite been as expected. The poor liquidity, weak rating-mechanisms, absence of standardization and disclosure nomenclatures and illiquidity in the government bond market itself need to be addressed objectively. Research limitations/implications – The research adopted attempts to validate prior research and the attempts by regulators to implement an action plan. However, further progress on the changing scenarios is encouraged to be tested through a quantitative analysis. Originality/value – The government and the Central Bank have constantly emphasized the importance of developing the Corporate debt market. Several studies have attempted to analyze the factors that have crippled the growth and steps taken by the Central Bank and Securities and Exchange Board of India by appointing an Expert Committee. This paper has attempted to visit all these factors and analyze the attempts to overcome by the Expert Committee including the backdrop of other nations who have a vibrant corporate debt market today. It sets the tone for further quantitative or statistical analysis.

EM corporate debt is key risk to global markets

2015 ◽  
Keyword(s):  
Financial Stability ◽  
Credit Rating ◽  
Economic Conditions ◽  
Global Markets ◽  
Corporate Debt ◽  
Bond Markets ◽  
Content Type ◽  
Default Rates ◽  
Debt Market ◽  
Rating Downgrades

Significance The IMF's warning, contained in its Global Financial Stability Report (GFSR), shows concerns for the vulnerabilities posed by the build-up of EM corporate debt, especially dollar-denominated debt, which is at risk from local currencies' depreciation, the commodity sell-off and the deterioration in economic conditions across much of the developing world. Impacts EM bond markets will be more resilient than foreign exchange and equity markets, which are suffering from large sell-offs. Although EM corporate debt market-default rates remain low compared to the 1990s, credit rating downgrades will outweigh upgrades. Emerging Asia will remain the most resilient EM corporate debt market thanks to the stronger credit fundamentals of its corporates.

Australian central bank holds rate as growth slips

2021 ◽  
Keyword(s):  
Economic Growth ◽  
Central Bank ◽  
Interest Rates ◽  
Labour Markets ◽  
Content Type ◽  
Commercial Lenders ◽  
The Government ◽  
Roll Out ◽  
Growth Forecasts

Significance The RBA has cut its growth forecasts amid rising job losses, weakening demand and increasing signs that the latest COVID-19 lockdowns will continue to slow the economy until the pace of the vaccine roll-out programme can be increased. Impacts Although the RBA is independent, the government will hope it keeps rates low ahead of the elections due next year. Commercial lenders could raise interest rates independently of the RBA if inflation remains high. Wage pressures will re-emerge as labour markets tighten but may be mitigated by the extent of underemployment. Economic growth will be uneven across the country in coming months as pandemic-related restrictions vary by location.

Indonesia’s new investment ministry faces headwinds

2021 ◽  
Keyword(s):  
Central Bank ◽  
Foreign Investment ◽  
Short Term ◽  
Sovereign Wealth Fund ◽  
Content Type ◽  
Speed Up ◽  
The Government ◽  
Roll Out

Significance The government hopes greater domestic and foreign investment can help turn around the pandemic-hit economy. The governor of Bank Indonesia (BI), the central bank, last week said GDP should grow by 4.6% in 2021, compared with last year’s 2.1% contraction. Impacts Indonesia will count on private vaccination, whereby companies buy state-procured jabs for their staff, to help speed up its roll-out. The Indonesia Investment Authority, a new sovereign wealth fund, will prioritise attracting more investment into the infrastructure sector. Singapore will continue to be Indonesia’s largest source of FDI in the short term.

scholarly journals The performance of corporate bond issuers in times of financial crisis: empirical evidence from Latin America

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marc Berninger ◽  
Bruno Fiesenig ◽  
Dirk Schiereck
Keyword(s):  
Latin America ◽  
Latin American ◽  
Empirical Studies ◽  
Corporate Bond ◽  
Economic Conditions ◽  
Corporate Debt ◽  
Market Reactions ◽  
Content Type ◽  
Financing Decisions ◽  
Theoretical Approaches

PurposeThe fundamental theory of Modigliani and Miller (1958) states that a firm's financing decisions are independent from the firm's value. Nevertheless, several empirical studies as well as theoretical approaches from the past decade impugn this relation for real markets with their immanent inefficiencies. However, these questions are rather than academic in nature: Especially the influence of macroeconomic conditions on the market perception of debt issues is from high economic importance, since the need for new liquidity usually becomes even more urgent when the economic conditions worsen.Design/methodology/approachThis paper analyzes the reaction of shareholders to the issue of debt by Latin American firms under special consideration of the macroeconomic sentiment. To do so, a sample of debt issued by Latin American companies between 2003 and 2010 is empirically examined through an event study.FindingsThe authors empirically demonstrate that specifically in Latin America, debt issuing companies show a significant underperformance during recessionary periods and an overperformance during nonrecessionary periods. These findings differ from previous results for mature capital markets. The authors conclude that not only the overall economic conditions matter to explain stock market reactions on bond issues but also the maturity of the corporate debt market plays an important role.Originality/valueThe authors provide first evidence that the previously described changes in the returns on specific stocks depending on the economic sentiment (Baker and Wurgler, 2006) are under certain conditions also present in the market for corporate debt.

RUFO expiration will not end Argentina debt lawsuits

2015 ◽  
Keyword(s):  
Central Bank ◽  
Capital Markets ◽  
International Capital ◽  
Content Type ◽  
International Capital Markets ◽  
Debt Markets ◽  
Growth Prospects ◽  
The Government ◽  
Severe Shortage

Significance Debt markets have failed to pressure Argentina to end the impasse with holdouts, with the government arguing that it could not offer them new terms without offering similar concessions to holders of restructured debt. With elections scheduled for October, the current government is likely to kick the problem to its successor, leaving Argentina facing continued litigation in US and UK courts. Impacts The Central Bank has effectively managed drawdowns of dollar reserves, helping the government to maintain its hard line against holdouts. While this policy persists, the country will remain locked out of international capital markets. The severe shortage of dollars will continue, and will continue to dampen growth prospects until resolved.

Kenyan MPs will assert legislative independence

2016 ◽  
Keyword(s):  
Central Bank ◽  
Self Regulation ◽  
Content Type ◽  
The Government ◽  
Party Support ◽  
The Relationship

Significance The bill received cross-party support in parliament, illustrating its independence from the executive, which opposes the bill. The relationship between the executive and legislative branches is complex, with constituents and the president vying for influence among lawmakers. Impacts MPs will oscillate between independence and compliance over the next twelve months. By vetoing the banking legislation, Kenyatta risks opposing a popular measure with elections looming. Banks will compromise with the government and central bank on self-regulation to avoid legislated rates.

Ghana's IMF bailout to persist despite souring ties

2016 ◽  
Keyword(s):  
Central Bank ◽  
Budget Deficit ◽  
Credit Rating ◽  
Gdp Growth ◽  
Content Type ◽  
Bank Financing ◽  
Electricity Crisis ◽  
Manufacturing Activity ◽  
The Government ◽  
The Imf

Significance Earlier this month, the government passed a bill allowing for central bank financing of the budget deficit, contravening a core requirement in its agreement with the Fund. Earlier breaches led to the fourth tranche of the bailout (worth 114 million dollars) being withheld. Impacts Other donors will withhold aid disbursements until the impasse between Accra and the IMF is resolved. The electricity crisis will continue to undermine manufacturing activity, contributing to disappointing GDP growth. Ivory Coast's pro-business reforms mean it could attract investors deterred by Ghana's economic woes. Prolonged tensions with the IMF coupled with a deterioration its Ghana's fiscal metrics may drive a credit rating downgrade.

Nigeria's hefty budget will not dispel investor unease

2016 ◽  
Keyword(s):  
Central Bank ◽  
State Government ◽  
Negative Impact ◽  
Tax Compliance ◽  
Value Added ◽  
Short Term ◽  
State Budget ◽  
Content Type ◽  
The Government ◽  
Final Text

Subject Outlook for Nigeria's 2016 state budget. Significance The Senate this week will forward President Muhammadu Buhari the revised 2016 state budget, which it passed on March 23. Buhari says that he will assess it "ministry by ministry" before signing it into law to ensure that there are no irregularities in the final text. The 6.06-trillion-naira (30.6-billion-dollar) spending plan is 17 billion naira lower than the initial budget proposed by the government in December 2015. Impacts Buhari is unlikely to consider raising the value added tax given its effect on living costs, which would hurt the APC electorally. The central bank will likely keep currency restrictions in place, at least in the short term, despite their negative impact on firms. The tax compliance drive will be most effective in Lagos, due to heavy investment in collection capacity by the state government.

Central European local investors will hold on to bonds

2017 ◽  
Keyword(s):  
Emerging Market ◽  
Bond Markets ◽  
Content Type ◽  
Developed Economies ◽  
Local Currency ◽  
Domestic Debt ◽  
The Us ◽  
Debt Market ◽  
Us Presidential Election ◽  
To Come

Significance The lira’s collapse is fuelling outflows from Turkey’s local currency government debt market, as foreign investors reduce their purchases of emerging market (EM) domestic debt amid a sharp sell-off in bond markets following Donald Trump’s upset victory in the US presidential election. Both Hungary and Poland -- hitherto two of the most resilient EMs -- suffered net outflows last year and are likely to come under further pressure as the ECB starts to scale back, or ‘taper’, its programme of quantitative easing (QE) in April. Impacts The dollar’s rise against a basket of other currencies since the US election will put severe strain on EM assets. The surging price of Brent crude is improving the inflation and growth outlook. Higher international oil prices will also reduce the scope for further easing of monetary policy in developing and developed economies.

Hardening German attitudes on Greece risk a rupture

2015 ◽  
Keyword(s):  
Central Bank ◽  
Euro Area ◽  
Capital Controls ◽  
Financial Assistance ◽  
Content Type ◽  
Bank Deposits ◽  
Reform Programme ◽  
System Collapse ◽  
Greek Government ◽  
The Government

Significance Pressure is intensifying on the negotiators representing the Greek government and its creditors -- most importantly Germany -- to reach some form of agreement allowing the release of sufficient financial assistance for Greece to meet its payment obligations due by the end of June. However, the governing Greek coalition does not appear stable enough to adopt the reform programme demanded by its creditors. Meanwhile, German economic opinion on Greece is hardening, in the gathering belief that the risks to the rest of the euro-area from any concessions to Athens are now greater than those of a possible rupture. Impacts If the Greek negotiations drag on, the government may have to introduce capital controls to stem the outflow of bank deposits. Greece's central bank remains reliant on the ECB to continue authorising ELA, but opposition to ELA in Germany is growing. If the ECB withdrew ELA, Athens's choices would be to meet its creditors' demands, see a financial system collapse or exit the euro.

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