An active and liquid CBM would mean not just transparent arm’s-length finance for long-gestation projects; it would hugely incentivise streamlining of their implementation schedules and thereby cut down on project delays.
bcCapital markets regulator Sebi is reportedly planning to float an exchange-traded fund (ETF) for corporate debt to shore up activity and transparency in the corporate bond market (CBM). An active and liquid CBM would mean not just transparent arm’s-length finance for long-gestation projects; it would hugely incentivise streamlining of their implementation schedules and thereby cut down on project delays.
In the absence of an active CBM, infrastructural delays tend to be quite routine, and at a massive avoidable national cost. As per a recent report, as many as 479 infrastructure projects, each costing ₹150 crore or more, have run up cost overruns totalling over ₹4.4 lakh crore. When ‘Metro Man’ E Sreedharan was overseeing construction of the Konkan Railway project, which has bridge pillars taller than the Qutub Minar, he set up giant project clocks on site to stay focused on schedules and keep borrowing costs as per budget. Now, over 25 years later, we surely need less unconventional instruments like an active CBM, complete with analysts’ tracking and market oversight. In parallel, we need to step up availability of risk-mitigation derivative products for a thriving CBM.
A corporate bond ETF would allow investors to gain exposure to benchmark bond indices in an inexpensive way. But we ought to do more. For instance, there’s the need to operationalise norms for an active market for credit default swaps, to insure against bond defaults. In commodity derivatives, Sebi’s recent go-ahead to stock exchanges to rationalise and lower cross-margining requirements by up to 75% makes ample sense. We also need institutional credit enhancement by way of, say, partial guarantees on bond payments, to duly shore up investor comfort.