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.