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Our Bureau

Chennai, March 5 Keep it simple, is what journalists, writers and speakers are told – if they want to connect with their audience.

It is now clear that in the aftermath of the global financial meltdown, it is applicable to companies too – especially in their resource raising efforts.

Rating agency Crisil’s analysis of debt issuances, in December 2008 and January 2009, shows that ‘simple’ instruments are now dominating the market.

Crisil categorises financial products into three categories: ‘simple’, ‘complex’, and ‘highly complex’, based on the ease of identifying and understanding their risks. It said that the shift in investor preferences for simple instruments had followed the meltdown in the equity markets, tight liquidity in the debt market, expectation of an economic slowdown and watchful lending by banks.

According to the data analysed by Crisil, a total of 233 debt instruments were issued in December 2008 and 150 in January 2009. A majority of instruments issued in December 2008 (68 per cent) and January 2009 (83 per cent) were ‘simple’ instruments, in line with the mix observed in November 2008 (82 per cent).

According to Mr S. Venkataraman, Senior Director, Crisil Research, “The lower total debt issuances and as well as the high share of ‘simple’ instruments in January may be partly due to the prevalent expectations that interest rates would further decline.”

‘Simple’ instruments largely comprise commercial paper and certificates of deposit and fixed coupon bearing non-convertible debentures. In December 2008 and January 2009, ‘complex’ instruments were almost entirely accounted for by floating and fixed rate debentures with put and call options, while ‘highly complex’ instruments entirely comprised equity-linked debentures.

Pass-through certificates related to securitisation transactions which were a significant component of ‘highly complex’ issuances in October 2008, have been virtually absent from the market since then, a press release from Crisil added.

More Stories on : Overseas Borrowings | Credit Rating

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