Govt clears CDMDF guarantee scheme for corporate debt, Sebi issues guidelines

Govt clears CDMDF guarantee scheme for corporate debt, Sebi issues guidelines

Subject :Economy

Section: Capital Market

In News: The Union government has approved a scheme providing complete guarantee cover for debt raised by the Corporate Debt Market Development Fund (CDMDF), a backstop facility for investment-grade corporate debt that launches today.

Key Points:

• Sebi said CDMDF will be launched as a close-ended scheme with an initial tenure of 15 years (extendable) from the date of its initial closing, that is, the date on which contribution from all AMCs and specified schemes is received by CDMDF, extendable at the discretion of the DEA in consultation with Sebi.
• Department of Economic Affairs (DEA) said the Guarantee Fund for Corporate Debt (GFCD) will manage the Guarantee Scheme for Corporate Debt (GSCD).
  • The GFCD will be a trust fund formed by the Department of Economic Affairs (DEA) and managed by the National Credit Guarantee Trustee Company Ltd, a wholly-owned company of the Department of Financial Services under the Ministry of Finance.
  • CDMDF, an alternative investment fund, will act as a backstop for purchase of investment-grade corporate debt securities. It will enhance secondary market liquidity by creating a permanent institutional framework for activation in times of market stress.
• During normal times, CDMDF will deal in low duration government securities (G-sec), treasury bills, tri-party repo on G-secs and guaranteed corporate bond repo with maturity not exceeding seven days.
• Corporate debt securities to be bought by CDMDF during market dislocation include listed money market instruments, for which the long-term rating of issuers will be considered.
• SEBI Guidelines:
  • Released guidelines for investment by mutual fund schemes and asset management companies in CDMDF units.
  • CDMDF will buy only investment-grade securities from secondary markets, listed and having residual maturity of up to five years.
  • It will not buy any unlisted, below-investment-grade or defaulted debt securities or securities in respect of which there is a material possibility of default or adverse credit news or views.
  • It will buy at a fair price (adjusted for liquidity risk, interest rate risk and credit risk) but not at distress price.
  • CDMDF will be launched as a close-ended scheme with an initial tenure of 15 years, (extendable) from the date of its initial closing.
  • The units of CDMDF will be subscribed by AMCs of mutual funds and specified debt-oriented MF schemes – open-ended debt oriented mutual fund schemes excluding overnight funds and gilt funds and including conservative hybrid funds.
  • Specified debt-oriented mutual fund schemes will invest 25 basis points (bps) of their assets under management (AUM) in the units of CDMDF.
  • AMCs will make a one-time contribution equivalent to two bps of the AUM of specified debt-oriented mutual fund schemes managed by them.