Almost 90% domestic bond issuers are AAA/AA rated: Report

There are 32,534 rated companies that have issued bonds in the domestic market but still the corporate bond market in the country is still very shallow, constituting only 16 percent of GDP as against 120 per cent of GDP in the US.

Mumbai: Nearly 85-90 percent of the bond issuers are AAA and AA-rated companies, compared to under 5 percent in the US, says a report.

The report comes amidst increasing regulatory glare on credit rating agencies, especially following the IL&FS bankruptcy, a development caught these agencies by surprise. They were also under regulatory scanner after the 2008 global financial crisis for the same type of approach to dubious debt instruments yet rated them AAA.

There are 32,534 rated companies that have issued bonds in the domestic market but still the corporate bond market in the country is still very shallow, constituting only 16 percent of GDP as against 120 per cent of GDP in the US.

Similar is the case with other emerging markets, and this is so because large investors, including insurers and pension funds, can invest only in highly-rated paper.

"As a result, 85-90 percent of bond issuances are by AAA and AA rated companies. Beyond this rating category, the financial flexibility to tap he capital market instruments drops drastically," says a Crisil report on Tuesday.

This acts a strong incentive for many companies to maintain a better credit profile at the top end of the rating spectrum on the national scale, it said.

In the US, AAA-rated companies contributed less than 5 percent of bond issuances in 2017, while A and BBB rated issuers accounted for over 60 percent, and speculative grade companies around 20 percent.

The report said unlike India, in advanced economies such as the US, bond markets have material depth and width. The size of the US bond market is 120 percent of GDP, but this is just about 16 percent in the country.

"In terms of depth, US investors are willing to put money across the rating spectrum with active participation even in junk bonds," it said.

Given such an appetite, the incentives for a US company to strive to maintain its AAA rating stands reduced, because even a lower rating affords access to funds at finer costs, the report said.

(Inputs from PTI)