FIXED INCOME

SECURITIES
PRESENTATION
PRESENTATION ON
CORPORATE BOND
MARKET
 UNDERSTANDING
ABOUT BONDS
• 1. Role of Bonds in Financial Markets: Bonds are important tools that
help companies raise long-term funds, giving them an alternative to
borrowing from banks for growth and development.
• 2. Current State of the Corporate Bond Market: India's market for
corporate bonds is less developed compared to other countries, which
limits how effectively it can be used by companies to raise money.
• 3. Dependence on Bank Financing: Many Indian companies depend
mostly on bank loans for their financing needs. This reliance on banks
can be risky, especially when the economy slows down and banks are
less willing to lend.
• 4. Need for a Stronger Bond Market: Developing a more robust bond
market is crucial for diversifying funding sources, lowering risks, and
encouraging long-term investments in projects like infrastructure.
• 5. Regulatory and Market Challenges: The growth of the bond market
is slowed by issues such as strict regulations, low investor awareness,
and poor market infrastructure.
• 6. Significance of the Study: This study looks at how Indian private
companies get their funding, focusing on corporate bonds, changes in
regulations, and opportunities for market growth.
 • Present Value Calculation-
Saxo Bank Ltd. is issuing a 10-
year corporate bond with a
face value of ₹2,000 and an
annual coupon rate of 8%. The
QUESTIONS 1 current market interest rate is
6%. Calculate the present
value of the bond.
• Discuss the impact of issuing
the bond at this value Saxo
Bank Ltd.'s financial strategy.
FACE VALUE (FV) = ₹2,000
ANNUAL COUPON RATE = 8%
ANNUAL COUPON PAYMENT (C) = 8% OF ₹2,000 =
₹160
MARKET INTEREST RATE (R) = 6% = 0.06
NUMBER OF YEARS (N) = 10

PV OF BOND = PV OF COUPON PAYMENTS + PV OF

FACE VALUE

PV OF BOND = 1177.64+1116.39 = 2294.03SSSSS

The impact of issuing the bond at the calculated present

value:
• 1. Lower Cost of Borrowing: The bond’s current market interest
rate (6%) is lower than its coupon rate (8%), so the issuer can
borrow at a lower cost compared to what they would pay if they
issued the bond at a coupon rate equal to or higher than the
market rate.
• 2. Attractive to Investors: Since the bond offers an 8% coupon
rate while the market rate is 6%, it’s attractive to investors. They
get a higher return compared to what they’d get from other
investments with similar risk.
Companies usually has to go through
some interest rate risk:

•Discuss how fluctuations in the

market interest rate over the bond’s
life could impact its market value. QUESTION 2

•Propose ways to manage interest rate

risk
 1. Interest Rate Increase: If market interest rates go up, new
bonds will offer higher returns than the old bond with a fixed
interest rate. As a result, the old bond's market value goes
IMPACT OF down because it's less attractive to investors compared to the
new bonds.
INTEREST RATE 2. Interest Rate Decrease: If market interest rates go down,
new bonds will offer lower returns. In this case, the old bond
FLUCTUATIONS ON with a higher fixed interest rate becomes more valuable
because it offers better returns compared to new bonds.
BOND VALUE 3. Reinvestment Risk: If interest rates rise, the company may
face reinvestment risk as the cash flows from coupon
payments might need to be reinvested at lower rates, reducing
overall returns. If rates fall, the company benefits from higher
market prices, but the new cash flows would need to be
reinvested at lower prevailing rates.
 1. Diversify Bond Holdings:
Invest in bonds with different maturity dates. This way, not all
bonds are affected in the same way by interest rate changes.
2. Monitoring and Rebalancing:
Regularly monitoring interest rate trends and adjusting the bond
WAYS TO MANAGE portfolio can help manage exposure. The company can
rebalance its portfolio by selling bonds when market rates are
INTEREST RATE favorable, thus mitigating potential losses from falling bond
prices.
RISK 3. Diversification:
Diversifying funding sources can reduce reliance on bonds. The
company can consider equity financing or other debt
instruments, which may provide more flexibility in response to
interest rate changes.
 Advantages for Saxo Bank Ltd:

1.Interest Cost Management: If interest rates decrease,

Saxo Bank Ltd. can call the bonds and reissue new ones at
a lower rate, reducing overall interest expenses.
QUESTION 3 2.Flexibility: Callable bonds provide the company with
financial flexibility to manage debt levels and respond to
changing market conditions.
WHAT ARE THE 3.Marketability: Including a callable feature may make
the bond issue more attractive to certain investors,
POTENTIAL ADVANTAGES potentially enhancing demand.

AND DISADVANTAGES OF Disadvantages for Saxo Bank Ltd:

ISSUING CALLABLE 1.Higher Initial Costs: The higher yields required by

investors can lead to increased borrowing costs initially,
BONDS FOR SAXO BANK as investors seek compensation for the callable feature.
LTD.? 2.Investor Perception: The callable feature may deter
some investors who prefer the predictability of non-
callable bonds, potentially limiting the investor base.
3.Call Timing Risks: If the bonds are called, Saxo Bank Ltd.
may have to reinvest the capital at lower rates, which
could negatively impact future earnings.
 QUESTION 4
1. Interest Rates: Callable bonds often have higher interest
rates (coupons) than non-callable bonds to compensate for
HOW WOULD THE the risk that the bond might be called early. This means you
might get more interest payments over time.
CALLABLE FEATURE
AFFECT THE BOND’S 2. Price Volatility: The price of a callable bond is less likely to
rise as much as a non-callable bond if interest rates fall. This is
VALUATION because if rates drop, the issuer might call the bond to refinance
at a lower rate, which limits the bond's price increase.
COMPARED TO A
NON-CALLABLE 3. Valuation: Callable bonds are generally valued lower than
non-callable bonds with similar characteristics. This is because
BOND? the callable feature is a disadvantage to investors; they could
lose out on potential interest payments if the bond is called
early. To make up for this, callable bonds offer higher yields.
 THANK YOU
Submitted By:
Malvika Rastogi 2352101
Priyanshu Sharma 2352133
Shreyansh Verma 2352367
Sundaram Singh 2352106
Shivam Chaurasia 2352207
Suryakant Ojha 2352112