Market meltdown restricts complex debt issuances

Market meltdown restricts complex debt issuances

By rys

Mumbai: Rating agency Crisil Ltd has said that there has been a fall of 80% in the issue of “complex" instruments during November amid difficult conditions in the financial markets.

Crisil categorizes different instruments issued by the companies for fund raising based on their complexity.

It said in a statement on Monday that “the relatively sophisticated ‘Complex’ and ‘Highly Complex’ categories accounted for more than 60% of the 139 instruments issued in October. However, the share of these categories plunged to only 18% of 83 debt issuances in November".

Crisil said the sharp fall in complexity of debt instruments was attributable to uncertain financial market conditions, with a meltdown in the equity market, tight liquidity in the debt market, and a cautious approach to credit by lenders due to expectation of an economic slowdown.

Crisil categorizes financial products by the ease of identifying and understanding their risks such as simple, complex and highly complex. It launched this service, a global first, to help investors gauge the level of sophistication and due diligence required before investing in an instrument type.

Crisil said highly complex issuances in October largely comprised equity index-linked debentures (47%) and pass-through certificates related to securitization transactions (45%).