SA should not miss out on growing global debt market - HSBC official

A large number of funds through the debt capital market is flowing into the Asia Pacific region and South Asia should not miss out on the opportunity, Director, Debt Capital Markets, Asia Pacific, HSBC, N. Kartik told a LBR LBO CEO’s forum on ‘Re-imagining Debt Capital Market to unlock opportunities and sustain growth in Sri Lanka’, recently.

He said the debt market is an ideal way to channel funds for corporate and national economic growth as long as the governing and regulatory framework is in place.

The role of the regulator should be to create an enabling environment and facilitate growth and not stifle the market.“The debt market is an effective means to generate funds and sustain growth. Unlocking opportunities and sustaining growth are golden words that should ring in the back of our minds to achieve corporate success.

Going for debt capital funding, though seen by some as a bad move it is not a bad idea provided there are proper checks and balances,” Kartik said.

The Asian Bond market has grown sharply from 2007 to 2015. The debt market has grown to US$ 270 billion in the ASEAN region. After May 2007, the debt market grew to around US4 230 billion in a single month and to US$ 240 billion in a single month in 2015, according to data.

The primary aim of the bond market also known as debt market is to provide long-term funding for public and private expenditure.

The bond market is dominated by the United States which accounts for around 44% of the market. The size of the global bond market in 2009 (Debt outstanding) was estimated at $82.2 trillion.

CAL Group Managing Director and CEO Ajith Fernando said that there should be more investors coming into the debt market to develop it.

Lack of understanding of the difference between liquidity and debt has hindered the growth of the bond market. The debt market in Sri Lanka is yet at its infancy stage. The size of the market is insignificant compared to markets in the region.

“The high risk factor in the debt market has barred investors who prefer to go for shares rather than debt. In case of a liquidity crunch, the investor could dispose of shares at any time unlike debt which he or she has to hold up to maturity,” Fernando said.

Panellists at the forum stressed the importance of enhancing awareness of the corporate bond market.

They said that there is a process to evaluate the risk factor. Rating agencies provide credit ratings to corporates. Short selling is not a bad idea though it is perceived as such by some.

Without short selling there won’t be liquidity in the market. A steady environment with regulations is essential. The regulator must move away from stopping everything it cannot regulate and also try to protect investors at all times.

The regulator should allow more things to happen with knowledgeable investors,” Fernando said.

Director General, Securities and Exchange Commission of Sri Lanka, Vajira Wijegunawardene said that with the Central Counterpart (CCP) system to be introduced by the SEC with the Colombo Stock Exchange, the demand for corporate bonds will grow. State Owned Enterprises (SOEs) should tap the corporate bond market. As the regulator, the SEC will create an enabling environment while the industry should lead the way with innovative products.

- LF