Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman inaugurated the Corporate Debt Market Development Fund (CDMDF) in Mumbai on July 28.
- The framework for the Corporate Debt Market Development Fund (CDMDF) was issued by SEBI.
- The Union Finance and Corporate Affairs Minister, in her speech for the Union Budget of 2021-22, had announced the creation of a permanent institutional framework to enhance secondary market liquidity in the Corporate Bond market during stressed and normal times.
- The Department of Economic Affairs, Ministry of Finance, Government of India, has notified the establishment of ‘Guarantee Scheme for Corporate Debt’ (GSCD) for the purpose of providing guarantee cover against debt to be raised by Corporate Debt Market Development Fund (CDMDF) which will act as a backstop in the corporate debt market, in times of market dislocation.
- The GSCD is envisaged to be managed by the Guarantee Fund for Corporate Debt (GFCD), a Trust Fund formed by DEA with a corpus of Rs 310 crore.
- The GFCD will be managed by National Credit Guarantee Trustee Company Ltd. (NCGTC), a wholly owned company of the Department of Financial Services (DFS), Ministry of Finance, Government of India.
About CDMDF
- The 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.
- 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. The sellers of debt securities shall be paid 90 per cent of the consideration in cash and 10 per cent in terms of units of CDMDF.
- CDMDF was 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.
