May 2019

www.theasianindependent.co.uk
NEWS
May 2019
21
Now's an excellent learning opportunity
for INDIAN CREDIT MARKETS
News on Indian credit markets over
the last few weeks provide us with
pointers that should help shape policy
and business strategy. The struggle to
get bidders for Jet Airways and the
tepid response from investors towards
Indias fledgeling municipal bond market
point towards the need for a betterstructured
credit market, especially as
the nature of businesses evolve even
as the demand for credit rises to
finance consumption and infrastructure
needs.
The lack of investor interest in Jet
Airways, driven in no small extent by
a lack of clarity around how the carrier
will resolve its debt issues points
towards the need for better assessment
of risk scenarios by lenders moving
forward. Reassessing risk scenarios are
essential as businesses such as Jet
Airways that have relatively fewer tangible
assets utilise the debt markets.
From a lender's perspective, not finding
a prospective buyer for Jet Airways
implies potentially sending it to the
bankruptcy court. But for businesses
that do not have a significant quantity
of fixed assets, the value realisation
from bankruptcy courts can be meagre.
The fact that Jet Airways has a lower
value realisation in the case of bankruptcy
begs the question as to what
changes do lenders need to implement
in their credit models to deal with such
companies going forward. As the economy
evolves, businesses that borrow
will have balance sheets that perhaps
hold more intangible assets. In the case
of Jet Airways, unlike say a steel business,
a majority of its fixed assets, i.e.
planes are leased, and therefore bankruptcy
proceedings can realise limited
value. The pertinent point is that
lenders must do a better job in pricing
these risks moving forward as lending
to companies with more and more
intangible assets picks up. In other relevant
news, the lukewarm investor
interest in the municipal bond market
in India is one that merits attention.
Given the scale of urban infrastructure
required, municipal bonds could be a
critical financial instrument to plug the
financing gap. However, given the current
challenges and the stage of evolution
of the bond market, a vibrant and
functional municipal bond market will
require significant groundwork.
Clarity around municipal funding,
or more specifically, the payment
mechanism of the municipal bond,
will be vital to attracting investor
interest. Answering the fundamental
questions of "who pays" and "are they
willing to pay consistently" will alleviate
a majority of the concerns people
have with municipal bonds. Ensuring
an adequate payment mechanism will
require a lot of work to help cities plan
and budget financing efficiently.
Depth of the benchmark government
bond curve will also be vital
towards increasing investor appetite
for municipal bonds since investors
will utilise the government bond curve
as a benchmark. The eventual aim is to
create a market and an ecosystem for
municipal bonds that encapsulates
market makers, price transparency,
risk-benchmarks and mechanisms for
redressal of problems.
The issues around both Jet Airways
bankruptcy and the municipal bond
market point towards critical areas
that credit markets in India must
resolve through innovation in capital
markets. Given the dynamic nature of
business, lending standards and procedures
that worked for companies in the
more traditional industries may not be
well suited for new age businesses.
The question isn't merely about
how much to lend, but also is one
about security design whereby the
question arises as to whether collateralised
debt instruments allow lenders
to truly hedge their risks in a world
where asset-light models abound?
As credit markets get more sophisticated,
more attention will have to be
paid to security design above and
beyond what standard debt instruments
have to offer. Security design
implies bespoke instruments designed
to reflect both the cash flow risk of
businesses and the ability for recovery
in the case of default.
Dynamic pricing of credit risk
through secondary markets as is the
case with equity will be essential to
ensure that both credit charges reflect
the appropriate risk undertaken by the
lender. Additionally, credit instruments
utilised to lend to businesses
must be able to better factor in the
inability of the company to service
debt as the credit financing capacity of
the business declines, and not as a
jump to default event. Essentially,
credit instruments have to be designed
to reflect their seniority in the cash
flow waterfall. Better security design
will allow lenders better recovery of
money since rarely is a credit default a
sudden event. As mentioned earlier,
the ability of the market to factor in
the declining credit profile of a company
will ensure that debt burdens for
low-quality credit businesses aren't
ramped up at the wrong time.
Astute utilisation of credit markets
and effective credit security design
will be a fundamental driving force for
boosting the Indian economy. The
government, businesses and individuals
all stand to benefit immensely from
robust credit markets.
Current trends provide an excellent
learning opportunity.
15 crorepatis in fray in
May 6 Bengal elections
Kolkata : Out of 83 candidates across
parties contesting from the seven West
Bengal seats in the fifth phase of the Lok
Sabha elections, 15 have assets worth over
Rs 1 crore, while 23 have declared criminal
cases against themselves, a study said on
Saturday. Among candidates who are in the
fray for the fifth phase polls in the state,
Trinamool Congress' outgoing MP from
Sreerampore constituency, Kalyan
Banerjee, has topped the crorepati list
declaring over Rs 17 crore of assets, followed
by the party's Barrackpore nominee
and former Railway Minister Dinesh
Trivedi with assets worth more than Rs 6
crore, said the report.
The BJP's candidate from Hooghly constituency,
Locket Chatterjee has declared
over Rs 3 crore worth of assets, according
to the study. Apart from Banerjee and
Trivedi, there are five Trinamool Congress
candidates - Sajda Ahmed for Uluberia and
Mamata Thakur for Bongaon declaring
assets worth over Rs 2 crore each while
party's nominee for Howrah Parsun
Banerjee and Aparupa Poddar for Arambag
having properties worth over Rs 1 crore
each. State's ruling Trinamool nominee for
Hooghly Ratna De Nag declared Rs 3 crore
of assets. There are two Congress candidates
-- Debabrata Biswas for Sreerampore
and Jyoti Kumar Das for Arambag -- having
assets worth Rs 2 crore and 1 crore
respectively.
CPI-M's Uluberia nominee Maksuda
Khatun declared Rs 1 crore of assets and
party's Armabag candidate Sakti Mohan
Das showed properties worth Rs 1 crore.
Average assets per candidate contesting
from the seven constituencies in the fifth
phase is Rs 75.24 lakh based on their selfsworn
affidavits, according to an analysis
done by West Bengal Election Watch and
Association for Democratic Reforms.
Among major parties, the average assets
per candidate for the seven Trinamool
Congress nominees is over Rs 5 crore,
while BJP and Congress candidates have
average assets over Rs 86 lakh and 73 lakh
each. Average assets of CPI (M) candidates
in the fifth phase polls stand at over Rs 46
lakh. The seven constituencies will go to
the polls in the fifth phase of polls on May
6. "Out of 83 candidates analyzed, 23 candidates
have declared criminal cases
against themselves," the study said.
According to it, 36 candidates, out of
83, have declared their educational qualification
to be between 5th and 12th standard
while 44 candidates have declared having
an education qualification of graduate or
above and three candidates have declared
to be just literate.
How an app changed
life for a comedian
Mumbai : Prince Kumar, who hails from a small town in
Jharkhand, has amassed a fan following on social media platforms
with his sense of humour.
He has built a following of over 1.7 million fans on the Vigo
app and through his longform
content channel PRIK-
ISU on YouTube, he set an
example of how an app like
Vigo can help those in places
with less or no opportunity,
to get noticed.
Prince insists his foray in
Vigo happened "accidentally"
when he stumbled upon
the app while searching for a
video app. Initially, he along
with his close friends used
the app to watch entertaining
videos.
Inspired by those videos,
they started making their
own comedy videos, one of
which hit over 50,000 likes
overnight. That motivated
them to make more such
videos.
"I come from a place
where entertainment is rare. Social media is non existing.
Initially it was a struggle but we were motivated and ambitious,"
Prince said in a statement.