Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Wed, 05 Nov 2008

Credit Default Swaps on Indian Entities

The Depository Trust and Clearing Corporation has published what is perhaps the first comprehensive official numbers on the global credit default swap market including the top 1000 reference names. The top 1000 names accounts for over 95% of the market by gross notional value and a little less than 90% by net notional value. Entry into this list is a measure of how important an entity is in global fixed income markets, but this is not a list that entities are eager to get into (many of the top names on this list are shaky sovereigns and shakier financials!).

I could spot four Indian entities in this list (ICICI, Reliance Industries, State Bank of India and Corus) in the middle of the list (ICICI is actually in the top 500). The top Indian names also serve as sovereign proxies and therefore the numbers must be interpreted with some care.

Posted at 10:57 on Wed, 05 Nov 2008     8 comments     permanent link

Comments...

Madhu wrote on Wed, 05 Nov 2008 14:09

Re: Credit Default Swaps on Indian Entities

Prof shouldn't we be proud that Indian cos are getting importance in global fixed income market? I dont think we should be worrying untill Indian firms become largest counterparties to CDS.

Avinash wrote on Wed, 05 Nov 2008 15:50

Re: Credit Default Swaps on Indian Entities

Dear Sir Greetings!

Is it possible to view the list? For academic purpose.

Warm Regards Avinash

Manish wrote on Thu, 06 Nov 2008 18:57

Re: Credit Default Swaps on Indian Entities

I am afraid if Indian banks should not face what US banks faced .

Manish Chauhan http://finance-and-investing.blogspot.com/

Sharat wrote on Sat, 08 Nov 2008 17:16

Re: Credit Default Swaps on Indian Entities

I would think that every Indian Dollar bond issuer made that list, perhaps even convertible issuers as well, though the size of their issues are perhaps too small. It's no real surprise, It's not a bad thing to have liquid CDS's in your debt either, in spite of turmoil the market has held up and remained liquid even when cash markets ceased to function altogether.

Its counter party risk that people are concerned about, and if it wasn't Indian banks we were considering, there would be some default risk, I cannot see any of those names defaulting. CDS's are OTC products, the people that buy and sell them in the past anyway, have had nothing to do with the issuers. I don't see it as a poor reflection on the cash issuer of the notional value of CDS's in the market is high, in fact, to some degree it probably reduces borrowing cost's.

The real concern is whether the people that buy and sell those guarantees will keep their promises or remain solvent IMHO.

Mrinal Sharma wrote on Tue, 25 Nov 2008 15:13

Re: Credit Default Swaps on Indian Entities

ICICI, SBI et al were names that figured prominently in synthetic CDOs. Investors searching for yield and diversification in their NA/Euro centric portfolios were onyl too eager to take risk on these names. These banks benefited from the tightening of credit spreads that resulted when arrangers seeked to hedge this risks on structures they sold. Now they face the opposite end of the spectrum when capital raising becomes costlier because of the cdo unwind. So they pay a price just as they benefited for no real operational efficiency of their own.

Natasha Agarwal wrote on Thu, 12 Dec 2013 12:50

Re: Credit Default Swaps on Indian Entities

Would you know when was the first single-name Indian CDS traded globally ? Is it 2003 or 2004? And which company and which exchange is it?