Perhaps the single biggest reform needed to push the corporate debt market is reforming insolvency laws. Today's news reports say that a comprehensive and stand alone insolvency law is being mooted. This is of course necessary but not sufficient to improve pricing of corporate debt. If a company takes 5, 10 or 20 years to be liquidated, you cannot really figure what the liquidation value of the company is. If you can't figure that out, it is mighty difficult to price a bond based simply on the rating, as you don't know what you will get and when you will get.
Clearly, we are still far away from a superior system, given that an intent from the government must be translated into a cabinet note, then a bill and then its passing in both houses of parliament. Witness, the huge delay in the new Companies Bill which has a vastly upgraded system of insolvency, but has been dangling for eons in limbo.
1 comment:
If insolvency laws is the reason for lack of corporate bond market then why there is a huge gap in bond issued and loans sanctioned for corporates?
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