Buyer of last resort on cards for corporate bonds | Economic Times

Mumbai: A 'Buyer of Last Resort' entity for corporate bonds is in the offing. The government is said to have agreed to the proposal to set up a body that will provide liquidity and confidence to the bond market in the event of a crisis. According to two people familiar with the matter, the Securities and Exchange Board of India’s committee on mutual funds is working on the contours of the concept—the brainchild of the capital markets regulator.“The role of this entity will be like a buyer of last resort in corporate bonds and the government has in principle given its green signal,” said one of the two people quoted above. “The concept has been finalised. Now, it will have to be executed well.”Currently, the discussions are on the possible structures of the proposed entity. Some of the arrangements that are being considered are a company or a Special Purpose Vehicle (SPV) or an Asset Management Company (AMC). The final shape of the plan will depend on the legal standing and the capital structure of the entity along with the government’s role in it.Mutual funds are expected to contribute most towards the capital requirements of this entity. While the initial contribution would be smaller, it be would scaled up over the next few years. Investor Appetite on the WaneMarket Infrastructure Institutions too could be allowed to own a stake while a proposal to get the government or its companies to own a stake has also been floated, the person cited above said. Sebi’s Mutual Fund Advisory Committee had recommended that issuers of corporate bonds could also chip in to boost the Settlement Guarantee Fund of such an entity.Mutual fund industry officials said the recurring crises in the corporate bond market prompted Sebi to consider the creation of a back-stop facility. The move is aimed at boosting liquidity in the corporate bond market beyond the top-rated debt securities. Since the IL&FS fiasco broke out late in 2018, investor appetite for debt securities with ratings below AAA—considered the least risky—has been on the wane.