Crisil: A-rated corporate papers are good buys

Corporate papers with 'A' rating provide good investment opportunities as their credit ratings have stabilised and financial ratios improved, rating agency Crisil Ltd said Tuesday.

"The differences between fundamentals of 'A' and 'AA' instruments, we believe, are not significant enough to justify the complete neglect of 'A' rated paper by the bond market," Roopa Kudva, CRISIL's executive director and chief rating officer, said.

Explaining Crisil's perspective at a seminar on investment opportunities in the debt market, Kudva said, A-rated papers provide an untapped opportunity for investors. There is an increasing trend of rating upgrades, she said.

According to Kudva, A-rated papers were victims of a vicious circle of investor apathy wherein these companies are unable to raise money from the market due to poor demand and there is no liquidity""as demanded by investors""because there is no issuance.

Weak investor appetite for A-rated papers was prompting companies not to accept and publish the 'A' rating.

As a result, A-rated companies are seeking finance from banks instead of tapping the bond market.

"As a result, issuance volumes in A-rated papers tend to be low, which in turn leads to low liquidity for this paper, which again increases bias against these papers among bond market investors," Kudva said.

According to Kudva, issuance of A-rated papers fell to 9% of the total issuance in 2000-2003 from about 60% in the previous three years.

Kudva noted that the financial ratios of the A-rated papers were increasing and their ratings had become more stable.

"We believe A-rated papers present significant untapped opportunities for investors," she said.

R. Ravimohan, managing director and chief executive officer, CRISIL, said, "We are making a plea to support endangered species called A-category paper."

Explaining the investor perspective, Alok Vajpeyi, president, DSP Merrill Lynch Fund Managers, said liquidity was the key issue for investors.

"Is there enough liquidity in AAA before we go down the line?" Vajpeyi said. "Liquidity is the key."

To revive the corporate bond market, Vajpeyi said trading infrastructure and transparency should increase. There is also a need for market making in corporate bonds, he said.