| |October 20179CIOReviewThere is visible vigour amongst regulators and government departments to implement various recommendations for deepening of the corporate bond markets at maturity. Also, the coupon value can be structured as lower-coupon in initial years. Bank loans need to pay interest on monthly basis. · Execution timelines for bond issues are generally shorter than loan financing· Diverse investor base ­ mutual funds, insurance companies, pen-sion and retiral funds, corporate treasuries, foreign portfolio in-vestors (FPIs), High-net worth individuals, etc. · Proceeds can be deployed to meet varied requirements- from tradi-tional working capital finance, on-going capex, refinancing to project finance, acquisition finance and land purchase finance. Essentially, it is possible to use funds to meet differ-ent needs, beyond what is permis-sible by banks. End-uses for funds may include, but not limited to: Acquisition financing, i.e. for pur-chase of shares of the target com-pany (Nirchem Cement's maiden bond issue to finance acquisition of Lafarge India)· Real estate financing, including land purchase, construction, com-mercial mortgage-backed securi-ties (CMBS) for office and retail mall space;· Structured bonds and securitized instruments ­ · Inflation-indexed bond; · Floating rate, variable rate, resettable bonds;· Coupon linked to performance of observed indices, like equity linked instruments (ELNs);· IIFCL & ADB partial credit enhanced bond (e.g. ReNew Wind Energy (Jath))· Refinance of completed and operational infrastructure projects ­ e.g. project bonds in transmission sector, toll-roads, NHAI-annuity roads; securitization of future receivables (e.g. storage facilities of IoT Utkal in energy sector); green bond(e.g. by CLP Wind Farm)· Mezzanine debt and subordinate debt supplementing equity capital, e.g. sub-debt by project companies, sub-debt by NBFCs, banks, etc.· Holdco financing, i.e. sponsors and promoters have issued bonds from their holding companies to augment their shareholding or onward lending to JV or step- down subsidiary. Essential items that need to be completed by a corporate desirous of issuance, include-a) Shareholders / members enabling resolution for issuance of securities; b) Appointment of arranger or underwriter (an experienced bond-house will ensure compliance for first time issuers)c) Appointment of rating agency, debenture trustee, registrar and transfer agent, d) Appointment of external legal counsel for the transaction (depending on the deal complexity)e) Consent for listing from listing agencyf) E-bidding (this is recent addition by SEBI for transparent price discovery)g) Agreement with security depository (CDSL or NSDL)h) Allotment of the bonds i) Post-allotment processes include bond listing, providing demat credit to bond-holders, execution of trust deed and creation of charge on the security.Key documents that are likely to be executed, include ­ information memorandum (and PAS4, adhering to provisions of Companies Act, 2013), debenture trust deed (DTD), debenture trust agreement (DTA), rating letter, listing (if listed), mortgage deed or deed of hypothecation (if secured).Issuers have a choice of either onshore or offshore bonds. Offshore bonds ­ in USD or EUR, etc. issued under Reg S/144A format, listed at an offshore exchange, to international investors. RBI, in Sept 2015, permitted Indian borrowers to issue INR denominated bonds (`Masala bonds'), of minimum 3-year tenor (lowered from 5-year), issued offshore to international investors. HDFC Ltd was the first to issue Masala Bonds. There is visible vigour amongst regulators and government departments to implement various recommendations for deepening of the corporate bond markets. This coupled with market forces gives me confidence that corporate bond markets are taking off, finally!!
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