Bond Markets

The headline in today’s Business Standard is regarding the proposed issue of “console” bonds in order to fund the modernization of Delhi and Mumbai Airports. These bonds will pay an interest life-long, without any principal payment. In effect, it is just like a bond being renewed every time it expires.

As an aside, I assume that in this case the coupon the bond will pay would be floating, else given the volatility of the markets in the long term, it’s unlikely anyone would want to invest in them.

Coming back, the article goes on to say that the coupon on these bonds would be around 150-200 basis points higher than the coupon on long-term infrastructure bonds.

Wondering if it would have been different if we had a market for corporate bonds in India. If regulation allows it and some exchange starts offering trading on these instruments, a large number of Financial Institutions (Mutual Funds, Hedge Funds, Insurance and Pension Funds) would start investing in these bonds instead of in equities, given the already over-heated equities market.

And if we did start one such market, liquidity in the bond markets would increase and I am sure the “long-term premium” which will be paid on the bonds being issued by the airports would have been much lower.

IIMB Lingo??

As mentioned in the earlier post, a German female who came down to IITM for exchange decided to do her MA thesis on IITM lingo.

Was wondering how much of the IIMB lingo has actually come from IITM, and how much of it is original. Must start by mentioning that when i moved from IITM to IIMB 2 years back, I hardly had a problem adjusting to the new lingo. Most of the words seemed only too familiar, some of the new ones being:

– Global Origin unknown. However, commonly used across B school campuses
– Fraud Origin: from one of the northern IITs. I know for a fact it’s a commonly used word in IITK
– Poltu Again from one of the northern IITs
– Geela Think this was invented at IIMB. Talking about wetness around the center of gravity
– Hoosh Definitely invented at IIMB. All over the rest of the world, people call it ‘bumps’

During the course of the last two years I’ve been here, the following words/phrases have got added to the lexicon.
– Agreer I complete agree with you. Originates from a mail sent by our placement committee…
– Strong Credits must go to DD I guess. Definitely a strong word.
– Good Stuff Our President liked to use this phrase, so the locusts caught on to it and added it to the lexicon. Meaning and usage is identical to that of “peace” in IITM slang

Good stuff I must say. As for the rest of the Maajorly Shadymax Arbit Fundaes, they’ve all come from IITM Lingo!

Power vegetables

Today’s Deccan Herald talks about the popularity of Gherkin farming in Karnataka and how contract farming might exploit farmers. The article goes on to say that there are certain days when the Gherkins are not picked up on time by the trucks because of which they tend to get spoilt. (Gherkins have to be processed within 24 hours of picking, else they can rot). The article also talks about circumstances where farmers lose out in case of lack of water and similar circumstances.

A similar situation prevails in the case of chicken in India. With the advent of the bird flu, more than a million chicks have been slaughtered in Maharashtra. Farmers are protesting heavily over this and have taken to the streets. Not that one must blame them, since they stand to lose out heavily on investment.

With the growth of contract farming (given weird land laws, a large number of exporters are sourcing their stuff through contract farming), the rights of the farmers in cases of produce not being picked up on time and other losses become even more significant. Is there a solution to this mess?

Can you see a parallel between farm produce and power? What is the unique propety of electricity that makes it so tough to handle? Just like Gherkins, it cannot be stored. It has to be consumed instantaneously. What have the policy-makers done about this? There is something called a “take or pay” policy; where the generator’s fixed costs are reimbursed in case of non-withdrawal of electricity.

Is it possible to extend something like that to farm produce? Can the buyers of farm produce pay farmers for goods not picked up or for delayed pick up? Can farmers be partly compensated for some costs in case of a bad monsoon or pest attack? In short, can something which combines an insurance policy and a take-or pay agreement be effective in this sector?

Of course, proper framing of prices is essential, else one could end up paying farmers for vegetables not grown, a la Major Major Major Major’s father. However, if exporters and other purchasers of farm produce can come up with some innovative “products” in this space, it would go a long way in boosting contract farming in India.

And increased contract farming can only improve the state of the agricultural sector in India, especially for stuff like fruits and vegetables. It can provide a major boost to farm sector exports, and also improve the state of fruits and vegetables retailing (which, but for a few stores like the “greens and grains’ chain in Bangalore, is largely unorganized and follows a long supply chain).

Hallmarks of Economic and Social Progress

Landing back in Delhi is quite simply a pain in the ass. However much joy I get out of being home, it only really starts to hit me once I’ve left the confines of Indira Gandhi International. On a side note, once it’s privatised, i really hope they change the name. There’s something about naming institutions after such great hallmarks of economic and social progress that runs them to the ground. If you’ve ever been to Jawaharlal Nehru University, you’ll know what I’m on about.

Structured Products in the PPT World

On my blog, I had recently written about the market for minus attendance, with the attendance in question being the attendance for company PPTs. I had written about the pricing of PPTs and how some juniors tried to undercut each other in order to make some quick money.

The last couple of days have seen some interesting structured products and barters coming into this market. For example, I have been able to buy a couple of -PPTs by paying madman aadisht in terms of blogposts. I write stupid posts like this one and get him to go for PPTs instead of me! Then, liquor has also entered the market. A friend of mine got a junior to go for him by paying him two swigs of some expensive beer. There is this other junior who takes payments only by way of cigarettes!

I had also mentioned in that blogpost that there doesn’t seem to be a concept of variable compensation here, compensation varying with the length of the PPT. Two of my friends struck one such contract a few hours ago. Rs. 200 (note the substantial increase) for the first 1 1/2 hours and Rs. 50 for every additional half hour! Unfortunately for the guy who bought the -PPT, the talk ended in half an hour!

Why Most Mergers Fail

At the IIMs, campus recruitment happens through something known as the slotting system. Slot zero has the highest paying jobs, with the most (alleged) prestige attached to them. This slot typically attracts consultancies, commodity trading desks, and importantly for the purposes of this post- investement banks.

As the investment banks have first crack at us, they typically pick the people with the highest grades, the most impressive work experience and extra curricular activities, and the best analytical skills that their interview techniques pick up. The sort of people you’d expect were the smartest of the lot.

All well and good. Slot zero ends, and the smartest people take up jobs with investment banks. Slot one begins, with the people who are arguably less smart.

Now, here’s the interesting part. Guess who shows up in Slot one. The India-based offshore centres of the investment banks, who hire people for the back office work that investment banks need: rating securities, coming up with valuations for companies, and generally telling the investment banks whether they should be long or short on a particular deal.

Now this is where it gets interesting: the smart people at the investment banks who make a particular deal have to rely on the supposedly less smart people at the back office to provide them with information to help them make a decision on that deal. The guy at the back office, being less smart, is more likely to get the valuation wrong. Using this wrong information, the smarter guy goes ahead and makes the deal, and the deal fails spectacularly.

You know, this just might explain the fate of the AOL-Time Warner merger, the HP-Compaq merger, and so many other mergers in the history of corporate finance.

Guest Blogger: Found

Ladies and gentlemen, please welcome Maajorly Shadymax Arbit Fundaes’s new guest blogger: SKimpy (also known as Wimpy or the Wimp).

SKimpy is a former RSS member who has now given up his Hindutvawadi ways and taken up the multiple pursuits of promoting free markets, bashing I-banks, and cribbing about his love life. The sight of Wimpy in his red bandana has been known to strike terror into the hearts of swaps dealers from New York to Tokyo.

He will be here for about a month, until placements begin. He has promised not to post personal stuff out here, but has made no such guarantees about insulting I-bankers, B. Com graduates, or people from outside South Karnataka. Which is all good and keeping in spirit with our values.

I shall be paying him in PPT attendance.

Down with The Hindu

The pseudo-secular, crypto-leftist rag for indolent IAS aspirants seems to have decided that since it can’t match the Slimes in circulation, it will match it in abysmal journalism.

Day two saw one of the big events in the fest, the quiz, turn out to be remarkably low-key. Even though the number of participants was high, the presentation did not meet the standards set during the business fest, Vista, held earlier in the year. [link]

Our presentation couldn’t match up to Derek O’ Brien’s? Derek, who chucks teams off the stage and destroys any chance of fightbacks? Derek, who despises fundaes, and whose quizzes will never have those aaahhhh moments that only fundaes can bring? Derek, who doesn’t know his participants personally, and can’t banter with them? Our presentation was worse than his? This is surely enough provocation for me to pull a TTG and offer Anand Sankar creative additions to his diet.

Our pal continues with his woeful disregard for facts and goes on to say

Jal… have a very rock sound rather than a pop one

And people still claim that the Hindu is reliable. Astounding.

The Irony is Slaying Me

The World Trade Organisation ruled on Tuesday that European restrictions on the introduction of genetically-modified foods violated international trade rules, finding there was no scientific justification for Europe