Microsoft’s maiden venture into the corporate bond market on Monday was business as usual in New York or London. Yet, such a sight is rare in India. The Indian corporate debt market still has a long road to travel. The Securities and Exchange Board of India (Sebi) took one further step on that road on Monday.
Sebi has now simplified the disclosures companies need to provide while issuing their debt securities. A company that already lists its equity, for instance, needn’t make available as much documentation as one whose equity isn’t publicly listed. The market regulator has been interested in the past in easing the regulatory regime for corporate debt and, as its circular notes, this helps “develop the primary market for corporate bonds in India”.
That this primary market is underdeveloped is no secret. Indian firms may have been lured away by easy money abroad, but they were equally pushed away by poor financing at home. In the absence of a robust and liquid bond market, corporate balance sheets are now suffering thanks to overexposure to external commercial borrowings (ECBs).
In 2007-08, for instance, when domestic bank credit to firms increased by Rs4.3 trillion, ECBs were as large as Rs1.1 trillion. From Wockhardt’s foreign currency convertible bonds to Tata’s bridge loans, this problem stares Indian CFOs in the face.
Sebi, then, is moving in the right direction. A more flexible and less stringent regulatory framework helps companies in any part of the world. The 2002 Sarbanes-Oxley Act in the US imposed such harsh standards for public offerings that businesses packed their bags to move to London or Hong Kong. In London itself, smaller companies prefer to float shares at the Alternative Investment Market, a sub-market of the stock exchange that offers easier regulations.
Yet, much remains to be done in India. The past decade has seen a number of advisory committees, most notably the RH Patil committee in late 2005, offering recommendations on advancing this market. The government hasn’t done enough on questions regarding taxation of such securities, for instance. Sebi’s move is necessary, but far from sufficient, to see India’s corporate bond market blossom.
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