Professional Documents
Culture Documents
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1) Executive Summary
2) Introduction
3) Financial Market & Its Classification
4) Financial Instruments & Its Classification
5) Definition & Types Of Debt Instruments
6) Importance Of Debt Instruments
7) Types Of Debt Instruments
8) Comparison Between Debt & Ownership Instruments
9) RBI/SEBI Guidelines On Debt Instruments
10) Case Study
11) Conclusion
12) Bibliography
13) Babliography
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The debt market is a bigger source of borrowed funds than the banking
system. The market for debt is larger than the market for equities (i.e., is
larger than the stock market). The debt market is commonly divided into the
so-called money market (short-term debt, maturity of one year or less) and
the so-called capital market (long-term debt). Both of these terms are
misnomers. All productive assets are capital (including equities). The
terminology may be rationalized by the convention that
expenses are amortized over periods in excess of one year. "Money
market" instruments are debt and although they can be used as a store of
value they can only be regarded as a medium of exchange in the sense
that they are readily sold at a price which is usually predictable within a
short time frame. Moreover, it is hard to base a conceptual distinction
between money & non-money based on a one-year maturity dividing line.
Most debt instruments are not traded through exchanges, but are traded
over-the-counter (OTC) in a telephone/electronic network market where
dealers or brokers frequently act as direct intermediaries. Money-market
instruments usually have such large denominations that they are not
accessible to small investors except through mutual funds.
The market for debt can be viewed as a market for money in the sense that
sellers of debt (lenders) have a supply of money which is demanded by
would-be buyers (borrowers). In this model, interest rates are the "price" of
money. An increase in demand to borrow money due to increased
economic opportunity increases interest rates (everything else being
equal). The market for debt is influenced by term-to-maturity, credit-
worthiness of borrowers, security for loan and many other factors. By their
control of money supply, government central banks try to manipulate
interest rates to stimulate their economies without causing inflation.
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A financial market is a mechanism that allows people to buy and sell (trade)
financial securities (such as stocks and bonds), commodities (such as
precious metals or agricultural goods), and other fungible items of value at
low transaction costs and at prices that reflect the efficient-market
hypothesis.
Typically, the term
means the aggregate of possible buyers and
sellers of a certain good or service and the transactions between them.
The term "market" is sometimes used for what are more strictly ,
organizations that facilitate the trade in financial securities, e.g., a stock
exchange or commodity exchange. This may be a physical location (like
the NYSE) or an electronic system (like NASDAQ). Much trading of stocks
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To understand financial markets, let us look at what they are used for, i.e.
what
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The following table illustrates where financial markets fit in the relationship
between lenders and borrowers:
Financial Financial
Lenders Borrowers
Intermediaries Markets
Individuals
Interbank
Companies
Banks Stock Exchange
Central
Individuals Insurance Companies Money Market
Government
Companies Pension Funds Bond Market
Municipalities
Mutual Funds Foreign
Public
Exchange
Corporations
Lenders
Many individuals are not aware that they are lenders, but almost everybody
does lend money in many ways. A person lends money when he or she:
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money from their cash surplus by lending it via short term markets called
money markets.
There are a few companies that have very strong cash flows. These
companies tend to be lenders rather than borrowers. Such companies may
decide to return cash to lenders (e.g. via a share buyback.) Alternatively,
they may seek to make more money on their cash by lending it (e.g.
investing in bonds and stocks.)
Borrowers
borrow money via bankers' loans for short term needs or longer
term mortgages to help finance a house purchase.
borrow money to aid short term or long term cash flows. They
also borrow to fund modernization or future business expansion.
often find their spending requirements exceed their tax
revenues. To make up this difference, they need to borrow. Governments
also borrow on behalf of nationalised industries, municipalities, local
authorities and other public sector bodies. In the V , the total borrowing
requirement is often referred to as the Public sector net cash requirement
(PSNCR).
may borrow in their own name as well
as receiving funding from national governments. In the V , this would
cover an authority like Hampshire County Council.
Many borrowers have difficulty raising money locally. They need to borrow
internationally with the aid of Foreign exchange markets.
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Derivative products
During the 1980s and 1990s, a major growth sector in financial markets is
the trade in so called derivative products, or derivatives for short.
In the financial markets, stock prices, bond prices, currency rates, interest
rates and dividends go up and down, creating
. Derivative products are
financial products which are used to
risk or paradoxically
risk. It is also called financial economics.
Currency markets
Seemingly, the most obvious buyers and sellers of currency are importers
and exporters of goods. While this may have been true in the distant past,
when international trade created the demand for currency markets,
importers and exporters now represent only 1/32 of foreign exchange
dealing, according to the Bank for International Settlements.
3 Banks/Institutions
3 Speculators
3 Government spending (for example, military bases abroad)
3 Importers/Exporters
3 Tourists
Much effort has gone into the study of financial markets and how prices
vary with time. Charles Dow, one of the founders of Dow Jones & Company
and The Wall Street Journal, enunciated a set of ideas on the subject which
are now called Dow Theory. This is the basis of the so-called technical
analysis method of attempting to predict future changes. One of the tenets
of "technical analysis" is that market trends give an indication of the future,
at least in the short term. The claims of the technical analysts are disputed
by many academics, who claim that the evidence points rather to the
random walk hypothesis, which states that the next change is not
correlated to the last change.
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Definition:
A real or virtual document representing a legal agreement involving some
sort of monetary value. In today's financial marketplace, financial
instruments can be classified generally as equity based, representing
ownership of the asset, or debt based, representing a loan made by an
investor to the owner of the asset. Foreign exchange instruments comprise
a third, unique type of instrument. Different subcategories of each
instrument type exist, such as preferred share equity and common share
equity, for example
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There are many kinds of financial instruments in the market that are widely
used today.
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In most of the countries, the debt market is more popular than the equity
market. This is due to the sophisticated bond instruments that have return-
reaping assets as their underlying. In the VS, for instance, the corporate
bonds (like mortgage bonds) became popular in the 1980s. However, in
India, equity markets are more popular than the debt markets due to the
dominance of the government securities in the debt markets.
Moreover, the government is borrowing at a pre-announced coupon rate
targeting a captive group of investors, such as banks. This, coupled with
the automatic monetization of fiscal deficit, prevented the emergence of a
deep and vibrant government securities market.
The bond markets exhibit a much lower volatility than equities, and all
bonds are priced based on the same macroeconomic information. The
bond market liquidity is normally much higher than the stock market
liquidity in most of the countries. The performance of the market for debt is
directly related to the interest rate movement as it is reflected in the
yields of government bonds, corporate debentures, MIBOR-related
commercial papers,and non-convertible debentures.
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The debt market is a market where fixed income securities issued by the
Central and state governments, municipal corporations, government
bodies, and commercial entities like financial institutions, banks, public
sector units, and public limited companies. Therefore, it is also called fixed
income market.
The key role of the debt markets in the Indian Economy stems from the
following reasons:
Since the Government Securities are issued to meet the short term and
long term financial needs of the government, they are not only used as
instruments for raising debt, but have emerged as key instruments for
internal debt management, monetary management and short term liquidity
management.
The returns earned on the government securities are normally taken as the
benchmark rates of returns and are referred to as the risk free return in
financial theory. The Risk Free rate obtained from the G-sec rates are often
used to price the other non-govt. securities in the financial markets.
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The debt market instrument is not entirely risk free. Specifically, two main
types of risks are involved, i.e., default risk and the interest rate risk. The
following are the risks associated with debt securities:
3 Default Risk: This can be defined as the risk that an issuer of a bond
may be unable to make timely payment of interest or principal on a
debt security or to otherwise comply with the provisions of a bond
indenture and is also referred to as credit risk.
3 Interest Rate Risk: can be defined as the risk emerging from an
adverse change in the interest rate prevalent in the market so as to
affect the yield on the existing instruments. A good case would be an
upswing in the prevailing interest rate scenario leading to a situation
where the investors' money is locked at lower rates whereas if he had
waited and invested in the changed interest rate scenario, he would
have earned more.
3 Reinvestment Rate Risk: can be defined as the probability of a fall in
the interest rate resulting in a lack of options to invest the interest
received at regular intervals at higher rates at comparable rates in the
market.
The following are the risks associated with trading in debt securities:
3 Counter Party Risk: is the normal risk associated with any transaction
and refers to the failure or inability of the opposite party to the
contract to deliver either the promised security or the sale-value at
the time of settlement.
3 Price Risk: refers to the possibility of not being able to receive the
expected price on any order due to a adverse movement in the
prices.
Significance
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The trading platforms for government securities are the µNegotiated Dealing
System¶ and the Wholesale Debt Market (WDM) segment of NSE and BSE.
In the negotiated market, the trades are normally decided by the seller and
the buyer, and reported to the exchange through the broker, whereas the
WDM trading system, known as NEAT (National Exchange for Automated
Trading), is a fully automated screen-based trading system, which enables
members across the country to trade simultaneously with enormous ease
and efficiency.
Corporate debt market: The corporate debt market basically contains PSV
bonds and private sector bonds. The Indian primary Corporate Debt market
is basically a private placement market with most of the corporate bonds
being privately placed among the wholesale investors, which include
banks, financial Institutions, mutual funds, large corporates & other large
investors.
The following debt instruments are available in the corporate debt market:
Non-Convertible Debentures
Partly-Convertible Debentures/Fully-Convertible Debentures (convertible
into Equity Shares)
Secured Premium Notes
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Tenure
Interest rate futures contracts can have short-term (less than one year) and
long-term (more than one year) interest bearing instruments as the
underlying asset. In the VS, short-term interest rate futures like 90-day T-
Bill and 3-month Euro-Dollar time deposits are more popular. Long-term
interest rate futures include the 10-year Treasury Note futures contract, and
the Treasury Bond futures contract.
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To begin with a brief rejoinder, the Indian money market is a market for
short term securities like T-bills, certificates of deposits, commercial
papers, repos and others. These debts are issued by the government,
banks, companies and financial institutions, respectively. The papers
traded are almost like a promissory note which usually has a fixed interest
rate and a maturity of less than one year.
Since the securities in this market are less than one year, and the source of
these securities is the government/banks/highly-rated companies, the credit
risk involved is considered to be low (though slightly higher than an FD).
Moreover, the tax incidence on the income from these schemes (depending
on the plan) is usually lower than the one that the interest on savings
accounts or FDs invite.
Therefore, from the SME point of view, the leveraging of the debt market
can actually come in two forms. First, as a supplier of debt, and second, as
the buyer. The capacity of the SME to tap the debt market is correlated
directly to the growth trajectory of the corporate debt segment. However,
the real and immediate gain potential for SMEs rests on their ability as the
buyer of debt, especially of short term debts.
.Debt market refers to the financial market where investors buy and sell
debt securities, mostly in the form of bonds. These markets are important
source of funds, especially in a developing economy like India. India debt
market is one of the largest in Asia. Like all other countries, debt market in
India is also considered a useful substitute to banking channels for finance.
The most distinguishing feature of the debt instruments of Indian debt
market is that the return is fixed. This means, returns are almost risk-free.
This fixed return on the bond is often termed as the 'coupon rate' or the
'interest rate'. Therefore, the buyer (of bond) is giving the seller a loan at a
fixed interest rate, which equals to the coupon rate.
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Advantages
Disadvantages
Retail participation is also very less here, though increased recently. There
are also some issues of liquidity and price discovery as the retail debt
instrument is not yet quite well developed.
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There are various types of debt instruments available that one can find in
Indian debt
market.
3 Government Securities
3 Corporate Bonds
These bonds come from PSVs and private corporations and are offered for
an extensive range of tenures up to 15 years. There are also some
perpetual bonds. Comparing to G-Secs, corporate bonds carry higher risks,
which depend upon the corporation, the industry where the corporation is
currently operating, the current market conditions, and the rating of the
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corporation. However, these bonds also give higher returns than the G-
Secs
3 They are provide a fixed stream of income so they are safer than
stocks.
3 Bond holders get paid by companies before stock holders. For
example, companies are required to make interest payments to
bondholders, but are not required to make dividend payments to
stock holders. Another example of this is that if the company went
bankrupt, the bond holders would be the ones to get the proceeds
from auctioning off the company's assets and the stock holders would
get nothing.
3 Another advantage of corporate bonds over government bonds is that
they provide higher interest. The reason for this is because interest
rates are made up of a few ingredients. First is the real interest rate
(the actual money you are receiving simply for loaning money), then
the inflation premium (bonds have to pay extra interest so that bond
holders don't have the value of their payments decline due to
inflation), then is the liquidity premium (this is extra interest bond
issuers have to pay if their bond is not easily bought and sold.
that the government will default on its loans. On the other hand,
corporations can and do go bankrupt. Because of this, corporate
bonds are considered riskier than government bonds.
3 Because bonds are a fixed investment, they may not offer protection
against inflation changes within an economy. If the interest rates on a
bond investment are low and inflation increases more than average
or expected, the investor has the potential to lose purchasing power
within their portfolio.
3 The prices of bonds are affected by fluctuations in interest rates
within the economy. Bond prices move inversely to interest rates;
when interest rates rise, bond rates fall and vice versa.
3 Some bonds are callable, meaning that the Issuer can redeem the
bonds issued. This is common when interest rates decline, making it
more favorable for the Issuer to refinance their debts. If this occurs,
the investor would be forced to redeem their bond and replace it with
a new one that potentially would have lower coupon rates. For an
investor who is relying on this income for their lifestyle, this can be a
substantial disadvantage.
Certificate of Deposit
3 CDs typically offer a higher rate of interest than Treasury bills and
savings account dueto the higher risk associated with them.
3 As the rate of interest is fixed, your return on investment is ensured
despite the rate fluctuations in the market.
3 CDs are insured by Federal Deposit Insurance Corporation and
hence are a good investment option for single income households
and retired folks. CDs are a risk-free investment.
3 The return on CDs is assured and helps in financial planning.
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3 It¶s very easy to set up a CD. One needs to just walk to their local
bank and request for purchase of CD. Money from the existing
savings account will be ear-marked against the CD that has been
purchased. The only thing to be made sure that the bank is FDIC
ensured.
3 CDs can be purchased and sold through a brokerage firm. This way
you can encash the CD before the maturity term without paying the
penalty.
3 Money is tied down for long durations of time. Though the investor
can withdraw money, he has to generally incur penalty in terms of
some amount of loss of interest on the deposit amount. You can get a
waiver on the penalty in case of special circumstances like disability,
death or retirement.
3 As the rate of interest is fixed, it is difficult to change or to take
advantage of the market situation when the market rates are
favorable. You will not be able to get an interest rate that favors
inflation.
3 Though the return rate is higher on CDs than savings account, it is
much lower than other money market instruments where you can
make possible investments.
Commercial Papers
In the global money market, commercial paper is a unsecured promissory
note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-
market security issued (sold) by large banks and corporations to get money
to meet short term debt obligations (for example, payroll), and is only
backed by an issuing bank or corporation's promise to pay the face amount
on the maturity date specified on the note. Since it is not backed by
collateral, only firms with excellent credit ratings from a recognized rating
agency will be able to sell their commercial paper at a reasonable price.
Commercial paper is usually sold at a discount from face value, and carries
higher interest repayment dates than bonds. Typically, the longer the
maturity on a note, the higher the interest rate the issuing institution must
pay. Interest rates fluctuate with market conditions, but are typically lower
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than banks' ratesThere are short term securities with maturity of 7 to 365
days. CPs are issued by corporate entities at a discount to face value.
Non-Convertible Debentures
finance to paying loans and other liabilities off, which increases the
ability to accept other bank loans. After reaching the top limit of bank
loans a company issues bonds again and the cycle repeats itself.
3 In the third cycle a company issues shares and a part of sources is
used for paying off the bank loans, paying off the bonds and the rest
is used to finance a further development. Then a company increases
bank loans and the cycle repeats itself again.
3 A significant advantage rests in the fact that returns of corporate
bonds represent a tax base and in case of a company profitability an
interest tax shield can be used.
3 Furthermore shareholders do not lose a company activity control
when issuing corporate bonds, while issuing them often does not
even need a collateral in a form of a property pledge.
3 It is due to say that as a consequence of an obligation to pay back
the principal and returns of bonds managers get a clearer view of rate
of returns and that successful issuing of corporate bonds (especially
their placement) is considered a prestigious thing helping the
company to gain respect by the public and business partners.
3 Convertible bonds are safer than preferred or common shares for the
investor. They provide asset protection, because the value of the
convertible bond will only fall to the value of the bond floor. At the
same time, convertible bonds can provide the possibility of high
equity-like returns.
3 Also, convertible bonds are usually less volatile than regular shares.
Indeed, a convertible bond behaves like a call option.
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Both debt and money instruments are popular financial instruments on
which large amounts of money are traded between different businesses
and investors; however, they each deal with a different type of funding. The
instruments give businesses different types of obligations and investors
different perks when they deal in one or the other. Both, however, are used
by public businesses to raise money.
Debt instruments are used to trade debt instruments. In other words, the
business issues a debt instrument, and an investor buys it. In a specific
period of time, the investor is paid back for the debt, along with interest.
Interest rates and time frames can vary according to the instrument. Bonds
are one of the most widely trade debt instruments on the debt instrument.
Both large corporations and governments use the debt instrument to raise
money or to change economic conditions.
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To the investor holding the bond or stock, the difference deals mostly with
the return on his investment. When an investor buys stock, he is buying
ownership of the business and can claim the right to vote on matters the
directors of the business decide. Investors do not have any ownership of
the business when they buy bonds; they receive only an obligation from the
business to repay the loan.
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3 Issue of FCDs having a conversion period more than 36 months will not
be permissible, unless conversion is made optional with ³put´ and ³call´
option.
3 Compulsory credit rating will be required if conversion is made for FCDs
after 18 months.
3 Premium amount on conversion, the conversion period, in stages, if
any, shall be pre-determined and stated in the prospectus.
3 The interest rate for above debentures will be freely determinable by the
issuer.
3 Issue of debenture with maturity of 18 months or less are exempt from
the requirement of appointing Debenture Trustees or creating a
Debenture Redemption Reserve (DRR).
3 In other cases, the names of the debenture trustees must be stated in
the prospectus and DRR will be created in accordance with guidelines
laid down by SEBI.
3 The trust deed shall be executed within six months of the closure of the
issue.
3 Any conversion in part or whole of the debenture will be optional at the
hands of the debenture holder, if the conversion takes place at or after
18 months from the date of allotment, but before 36 months.
3 In case of NCDs/ PCDs credit rating is compulsory where maturity
exceeds 18 months.
3 Premium amount at the time of conversion for the PCD, redemption
amount, period of maturity, yield on redemption for the PCDs/NCDs
shall be indicated in the prospectus.
3 The discount on the non-convertible portion of the PCD in case they are
traded and procedure for their purchase on spot trading basis must be
disclosed in the prospectus.
3 In case, the non-convertible portions of PCD/NCD are to be rolled over,
a compulsory option should be given to those debenture holders who
want to withdraw and encash from the debenture programme.
3 Roll over shall be done only in cases where debenture holders have
sent their positive consent and not on the basis of the non-receipt of
their negative reply.
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RBI GVIDELINES
2. Definition
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the corporate has a tangible net worth of not less than Rs.4 crore, as per
the latest audited balance sheet;
the corporate has been sanctioned working capital limit or term loan by
bank/s or all-India financial institution/s; and
4. Rating Requirement
4.1 An eligible corporate intending to issue NCDs shall obtain credit rating
for issuance of the NCDs from one of the rating agencies, viz., the Credit
Rating Information Services of India Ltd. (CRISIL) or the Investment
Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit
Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd or
such other agencies registered with Securities and Exchange Board of
India (SEBI) or such other credit rating agencies as may be specified by the
Reserve Bank of India from time to time, for the purpose.
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4.2 The minimum credit rating shall be P-2 of CRISIL or such equivalent
rating by other agencies.
4.3 The Corporate shall ensure at the time of issuance of NCDs that the
rating so obtained is current and has not fallen due for review.
5. Maturity
5.1 NCDs shall not be issued for maturities of less than 90 days from the
date of issue.
5.2 The exercise date of option (put/call), if any, attached to the NCDs shall
not fall within the period of 90 days from the date of issue. 3.
5.3 The tenor of the NCDs shall not exceed the validity period of the credit
rating of the instrument.
6. Denomination
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8.1 The corporate shall disclose to the prospective investors, its financial
position as per the standard INSTRVMENT practice.
8.2 The auditors of the corporate shall certify to the investors that all the
eligibility conditions set forth in these directions for the issue of NCDs are
met by the corporate.
8.3 The requirements of all the provisions of the Companies Act, 1956 and
the Securities and Exchange Board of India (Issue and Listing of Debt
Securities) Regulations, 2008, or any other law, that may be applicable,
shall be complied with by the corporate.
8.4 The Debenture Certificate shall be issued within the period prescribed
in the Companies Act, 1956 or any other law as in force at the time of
issuance.
9. Debenture Trustee
9.1 Every corporate issuing NCDs shall appoint a Debenture Trustee (DT)
for each issuance of the NCDs.
9.2 Any entity that is registered as a DT with the SEBI under SEBI
(Debenture Trustees) Regulations, 1993, shall be eligible to act as DT for
issue of the NCDs only subject to compliance with the requirement of these
Directions.
9.3 The DT shall submit to the Reserve Bank of India such information as
required by it from time to time.
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10.3 Investments by the FIIs shall be within such limits as may be set forth
in this regard from time to time by the SEBI
12.1 The role and responsibilities of corporates, DTs and the credit rating
agencies (CRAs) are set out below:
(a) Corporates
12.2 Corporates shall ensure that the guidelines and procedures laid down
for issuance of NCD are strictly adhered to.
12.3 The roles, responsibilities, duties and functions of the DTs shall be
guided by these regulations, the Securities and Exchange Board of India
(Debenture Trustees) Regulations,1993, the trust deed and offer document.
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12.4 The DTs shall report, within three days from the date of completion of
the issue, the issuance details to the Chief General Manager, Financial
INSTRVMENTs Department, Reserve Bank of India, Central Office, Fort,
Mumbai-400001.
12.5 DTs should submit to the Reserve Bank of India (on a quarterly basis)
a report on the outstanding amount of NCDs of maturity up to year.
12.7 The DTs shall report the information called for under para 12.4, 12.5
and 12.6 of these Directions as per the format notified by the Reserve Bank
of India, Financial INSTRVMENTs Department, Central Office, Mumbai
from time to time.
12.8 Code of Conduct prescribed by the SEBI for the CRAs for undertaking
rating of capital INSTRVMENT instruments shall be applicable to them
(CRAs) for rating the NCDs.
12.9 The CRA shall have the discretion to determine the validity period of
the rating depending upon its perception about the strength of the issuer.
Accordingly, CRA shall, at the time of rating, clearly indicate the date when
the rating is due for review.
12.10 While the CRAs may decide the validity period of credit rating, they
shall closely monitor the rating assigned to corporates vis-à-vis their track
record at regular intervals and make their revision in the ratings public
through their publications and website.
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13.1 Issuers of NCDs of maturity up to one year shall follow the Disclosure
Document brought out by the Fixed Income Money INSTRVMENT and
Derivatives Association of India (FIMMDA), in consultation with the
Reserve Bank of India as amended from time to time.
14. Violation of the directions will attract penalties, which would include
debarring of the entity from the NCD INSTRVMENTs
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STFC is the flagship company of the Shriram Group which has significant
presence in Chit Funds, Consumer Durable Finance, Life Insurance,
General Insurance , Stock Broking, Property Development, Project
Engineering, Wind Energy among others.
The issue opens on May 17 and closes on May 31. "The company wil use
the amount to expand its business and repay loans. The issue may be
closed on May 31 with an option to close earlier or extend up to a period as
may be determined by the Board of Directors of the company," Shriram
Transport Finance's Managing Director, R Sridhar, told reporters today.
The issue offers three options for investing in secured bonds and two for
unsecured paper. The secured debt is rated 'AA-plus' by CARE and 'AA' by
Crisil while the unsecured debt is rated 'AA' by CARE and and 'AA' by
Crisil.
JM Financial and ICICI Securities are lead managers to the issue and RR
Investors Capital Services is co-lead manager.
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"We are growing very fast and will continue to grow in the truck financing
segment. We are currently growing around 20 per cent year-on-year and
will continue to keep the same momentum in FY 11 also," Sridhar said.
"We will continue to raise money to expand our business in future through
NCDs," he said.
The company currently has 7-lakh customers. Last year, it added 3.5-lakh
customers.
"We are adding at least 3-4-lakh customers every year. Our business
model is very unique in the industry," he said.
Engineering major Larsen & Toubro group firm L&T Finance on Tuesday
opened its debentures issue to raise up to Rs 1,000 crore to fund its
financing activities, including lending and investments.
L&T Finance along with L&T Capital Holdings would offer 50 lakh
secured non-convertible debentures (NCD), debentures that cannot be
converted into equity, at Rs 1,000 each, totaling to Rs 500 crore, with an
option to raise an additional Rs 500 crore if the subscription is over
subscribed, the company said.
The NCDs have been rated AA+ by rating agency CARE and LAA+ by
ICRA, which indicate low credit risk.
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He further said indications in the first three months of the current fiscal
have been encouraging and L&T Finance hopes to do better in the coming
month
Larsen & Toubro arm L&T Finance has opted for the non-convertible
debentures (NCDs) route to raise funds for the second time in the past six
months. It has also applied for a preliminary application for receiving a
licence from the Insurance Regulatory & Development Authority (IRDA) to
enter the general insurance business.
³We have learnt from our earlier issue that the NCD route is the best option
to raise funds. So we are going for it without giving a second thought and
we intend to raise up to Rs 500 crore through this issue where the maturity
period is 36 months from the date of allotment,´ L&T Finance senior vice
president (financial services) N Sivaraman said.
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For a developing economy like India, debt instruments are crucial sources
of capital funds. The debt instrument in India is amongst the largest in Asia.
It includes government securities, public sector undertakings, other
government bodies, financial institutions, banks, and companies.
An investor can invest in money market mutual funds for a period of as little
as one day.
Avenues are also available for investing for longer horizons according to
your risk
appetite.
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3 www.rbi.org
3 www.google.com
3 www.investopedia.com
3 www.businessstandard.com
3 www.netbank.com