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New debt instruments slated to hit the market
Sharad Mistry
MUMBAI, January 4: Debt issues during calendar 1997 touched record highs -- both in the domestic and international markets.According to one estimate, a record of $745 billion worth of debt issues were offered in the international market, up from $680 billion in 1996. The US dollar remained the most preferred currency among the debt issuers as indicated by Capital Data Bondware, which said the dollar increased its market share to 48 per cent in 1997 from 41 per cent in the previous year. Meanwhile, the issuance of debt instruments in German Mark fell to 14 per cent of the total in 1997, from 16 per cent in the previous year, but still held its position as the second-most active issuance currency. Sterling came third, with a nine percent market share in 1997 from seven per cent in 1996, the figures revealed. In 1996, yen was the third-most tapped currency, but its market share fell to five per cent in 1997 from eight per cent the year before. Back home, the total amount of debt issues -- both privately
placed and public issues -- is understood to have crossed the Rs 25,000 crore mark, up from Rs 18,100 crore in the previous full year. In turbulent times, uncertainties are always on the rise, more so in the financial sector. Accordingly, the issuance of debt instruments too will rise during 1998, say investment bankers. What more, in India, as the share of the government guarantees and cheap funds from the central pool is declining fast, the cash-strapped state and central public sector undertakings will be forced to raise the required funds from the open market, based on independent credit rating. Collectively, these and other related factors will further expand the size of the fast expanding debt market.Not just the size. Even the variety of debt instruments will be more during 1998. For one, analysts at Parag S Parikh, one of the leading brokerage firms in Mumbai, feel monetary policies are expected to be tightened by the Reserve Bank of India during 1998.Further, during 1998, interest rates are
expected to tighten across various maturities, while the exchange rate may fall to a more realistic level of around Rs 41 to a US dollar. Foreign exchange assets, which have fallen to $23.74 billion from over $26.4 billion in October last, are not expected to climb, as expected by the RBI. Accordingly, 1998 will see introduction of various new instruments like the six per cent capital index bonds. "We expect new maturity of T-Bills and other money market instruments to be introduced, perfectly reflecting the state of the money market," said a note on the debt market issued by Parag S Parikh. The centre will have to make efforts to reign in the fiscal deficit, which seems set to cross the 4.5 per cent target for FY 1997-98. This year, there is a possibility of even a dollar-denominated offering of sovereign bonds. Further, the RBI is expected to set new norms for state government borrowings with each state vying for funds based on its own credit rating. Also, guaranteed issues by the states to PSUs will
decline sharply, as borrowers demand more transparency in methods and limits of issuing guarantees. On the retail front, there will be enhanced activity in debentures trading and the income schemes of mutual funds, will find greater subscriptions. However, the market will continue to weed out the inefficient, with a continued downgrading of companies and some more defaults in interest and principal payments. Meanwhile, Merrill Lynch & Co remained the top bond underwriter, with over $57 billion equivalent of bonds to its name. This gave it a 7.7 percent market share, nearly unchanged from 1996 levels. The number two slot again went to Morgan Stanley & Co Inc, which underwrote just over $50 billion of new bonds. Its market share rose to 6.8 percent from 5.7 percent. JP Morgan & Co Inc gained third position in the league table, swapping places with SBC Warburg Dillon Read, which fell from third in 1996 to fifth in 1997. SBC and UBS, which are due to merge this year, would have made it to the top if their
underwriting positions were combined.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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