Fundmen Moot Bourse For Corporate Debt

Fund managers across the country feel that the government should set up a separate exchange for trading in corporate debt instruments, especially with securitised debt likely to gain prominence with the passing of the securitisation bill recently.

According to Dharmen Shah, assistant vice-president (fixed-income), Investsmart India, "There is definitely a need to start trading in securitised debt in the country."

Similar views were echoed by a fund manager at Unit Trust of India, the largest mutual fund in the country which has a huge exposure to corporate debt.

A UTI vice-president said, "Orderly development of corporate debt market lies in the retail development of instruments and the regulator should take the lead in this case."

He further added, "Although the quality of paper is good but the rating for these papers are structured obligations, hence, the market has no proper apprehension of risk factors. Most funds have a big appetite for corporate debt paper, but the deals are closed door and price is negotiated between two parties."

Currently, the listing of securitised transaction is not compulsory and there has been no attempt on part of the regulator to develop a secondary market. "Lack of a secondary market for corporate debt could put a pure-debt scheme of mutual funds in trouble in case of redemption pressure," adds a senior fund manager at private mutual fund.

Adds Dharmen Shah, "People are realising that securitised paper is fundamentally more robust than plain vanilla corporate issuances. This realisation, when translated in to large issuances and trading of securitised paper, will also fit in with increasing volumes seen in home loans, white goods loans and usage of credit cards."

It is estimated that the total securtised debt issued by way of private placement is huge. Adds D Thyagarajan, director-structured finance ratings, Crisil, "The market for securtised debt in India, what we can say is that there has been a definitive trend towards the development of a more organised market for securitisation in the country as indicated by the increase in the level of non-bilateral deals in the past few years."

Interestingly, Crisil ratings, there has been a sharp growth in our rated volumes which was Rs 5,800 crore in 2001-02 (31 transactions) vis-a-vis Rs.3,800 crore in 2000-01(12 transactions).

This trend has continued in the first quarter of 2002-03 with rated volumes being Rs.2,800 crore (14 transactions) vis-a-vis Rs 530 crore (2 transactions) in the same period of the previous year.

While Dharmen Shah points that the market size for conventional securitised paper, that is, retail loans packaged into wholesale is estimated to be around Rs 2,000-3,000 crore. But if large corporate loan securitisation were to be included, then it is estimated that the market would be around 10,000 crore.