On account of uncertain financial market conditions coupled with a meltdown in the equity market, tight liquidity in the debt market, and a cautious approach to credit by lenders, given the expectation of an economic slowdown, issuances of complex and highly complex instruments have dropped 80% last month, said rating agency Crisil in a release, on Monday.
The relatively sophisticated complex and highly complex categories accounted for more than 60% of the 139 instruments issued in October 2008, Crisil said.
However, the share of these categories plunged to only 18% of 83 debt issuances in November 2008.
Highly complex issuances in October largely comprised equity-index-linked debentures (47%) and pass-through certificates (PTCs) related to securitisation transactions (45%).
Equity-linked debentures are mainly targeted at high-net-worth individuals and the main investors in PTCs are mutual funds.
According to Crisil, in November, very few highly complex instruments were issued. ?Notably, 85% of the complex securities and 100% of the highly complex ones were issued by financial sector entities, whereas simple instruments were issued mainly by manufacturing and service sector companies and government-linked entities, including public sector banks,? the rating agency said in its release.
Simple debt issues mainly comprised commercial paper, certificates of deposit, and non-convertible debentures with fixed coupons. Crisil service classifies the financial products into three categories, namely, simple, complex and highly complex.
?These trends are clearly linked to market factors. With the fall in equity prices, equity-index-linked debentures have lost popularity with high-net-worth individuals, who have probably shifted to simpler instruments. Moreover, demand for pass-through certificates has all but dried up with debt fund launches slowing in the face of heavy redemptions,? said Roopa Kudva, managing director and CEO, Crisil Ltd.