circular from SEBI on perpetual bonds in the second week of March set off tensions between the Finance Ministry and the market regulator and sent debt mutual fund investors into a tizzy once again. While the circular intended the changes to take effect from April 1, 2021, SEBI has now decided to give funds time until April 2023 to fall in line with the valuation rules.

What is it?

Perpetual bonds are fund-raising instruments that do not carry any maturity date as bonds usually do. Instead, they offer to pay their buyers a coupon or interest at a fixed date for perpetuity. While a variety of entities may issue perpetual bonds, the most common ones in India are issued by banks to meet their Basel III capital norms and are called Additional Tier 1 or AT-1 bonds. In the case of bank AT-1 bonds, banks can write off the principal in addition to not paying interest if they run short of capital or face bankruptcy. For an investor, this feature and the eternal nature of these bonds add to the risk; but they usually fetch higher yields than other debt instruments.

While the principal amount in such bonds is never really due for repayment, issuers do attach a call option. So, at the end of a specific term, say five or 10 years from the issue date, the issuers can buy back the bonds from the investors. Investors can also use the secondary market as a means of exit in the case of traded perpetual bonds.

Given the higher risk appetite required for such instruments, SEBI has restricted the purchase of such bonds to institutions. Debt mutual funds with retail investors in them however own such bonds. After the recent write-off of AT-1 bonds of YES Bank and its consequent effect on debt mutual funds, SEBI, in March, decided to further protect retail investors in debt funds by setting a 10 per cent limit for a debt fund’s investment in such bonds. It also laid down that funds need to value these bonds as if they were 100-year bonds and, if illiquid, to reflect their true risk.

Why is it important?

Bonds are valued by discounting the future interest receipts and principal repayments to present value. Today, fund houses value perpetual bonds assuming that their issuers will exercise their call options five or 10 years from the issue date. But SEBI wants fund houses to value them as if the principal will be returned only a 100 years later. Following this tweak in norms, perpetual bonds not traded frequently may see a sharp fall in value.

Not only will this change in valuation norm lead to significant volatility in the NAVs of several debt schemes, but the calculation can itself be cumbersome. Take the case of non-traded or thinly traded perpetual bonds. SEBI classifies debt securities with a trading volume of less than ₹5 crore in a calendar month as thinly traded. Perpetual bonds that fall into this category may need to build a risk-free benchmark and identifying a 100-year benchmark can be tough. The Finance Ministry appears worried about the circular because with stiffer valuation norms and the 10 per cent limit on debt scheme exposures, public sector banks may find it tougher to raise capital through this route.

Why should I care?

While the fund houses have their work cut out, investors in debt schemes may have their troubles too if they own schemes with large perpetual bond exposures as their returns may get more volatile. Prices of perpetual bonds in the market have already tanked sharply in the last couple of weeks after the SEBI circular. Since the circular mandates the valuation to be updated by April 1, debt schemes that have higher exposure to thinly traded perpetual bonds may need to wind down this exposure or revalue these bonds causing NAV blips. A CRISIL Research report has found that 36 debt schemes from 13 fund houses held more than the SEBI-mandated limit of 10 per cent in perpetual bonds.

The bottomline

Their name may be bond, but perpetual instruments are almost as risky as stocks.

The financial markets are a cult controlled apparatus for harvesting the resources of the world.

TLdr George Soros wants souls for his master.

https://www.thehindubusinessline.com/opinion/columns/slate/all-you-need-to-know-about/article34134365.ece#

No race, no people has ever been free from slavery, either as slave or as master. Every race and every people ever enslaved became at every opportunity enslavers themselves:

Greek enslaved by Greek in the time of Aristotle, black enslaved by black since time immemorial in Africa and in the 19'th century, the American south. Slavery was never predicated on race except as circumstances rendered it. Many of the vast number of slaves of ancient Rome were fair skinned, fair haired Germans and Anglo Saxons.

The universal truth of slavery, that it has been throughout history one of the defining manifestations of human nature, has been suppressed both by history and by that nature.

The enduring myth that slavery was imposed on Africa by outside forces, that it was introduced by the Portuguese in 1444, is belied by the fact that slavery and the slave trade were ancient and commonplace within Africa long before the arrival of any white slaver. (The trans-Sahara slave trade route between West and North Africa likely had it's beginnings as early as 1000 B.C., hundreds of years before the Ethiopians, long enslaved by Egypt, conquered and gave to Egypt its Twenty-Fifth Dynasty; hundreds of years before Homer wrote in the Iliad that half the soul of man was lost when "the day of slavery" came upon him.")

"Slavery was widespread in Africa," writes Professor John Thornton in Africa and the Africans in 'The Making of the Atlantic World, 1400 - 1800,' "because slaves were the only form of private, revenue producing property recognized in African law."

To the 'odehye' - the freeborn - elite of West Africa, the outside forces of Europe, England and the Americas imposed no evil, but merely presented a new market, increased demand, and lucrative new export opportunities that the indigenous powers welcomed and readily exploited.

We bewail our past as slaves - experienced or ancestral, real or fancied - but never commemorate our enslavement of others.

Only circumstance separates slave from master; and for much of history, freedom and the will to enslave have been one. The oppressed, in the blessing of their deliverance, become the oppressors.

"The ox," said Aristotle, "is the poor man's slave."

"An odd word that recurs obsessively in the Bible, where it appears in forty passages: "Burn their Asherah in the fire and cut down the idols of their god", "Cut down their Asherah and burn their idols in the fire." How many times and with what stubborn vehemence, does Yahweh enjoin his people. Asherah designates a goddess, the partner of Baal. And at the same time certain sacred poles, which were worshiped. Asherah is a name that condenses within itself the abomination of idolatry. Yet for a long time, until the reign of Manasseh, it happened that "the objects that had been made for Baal, for the Asherah, and for all the heavenly host" were housed inside the temple for Yahweh. For Israel, the perennial risk was that the house of Yahweh still contained the altars of other divine beings. Hence Manasseh "made his son pass through fire and practiced astrology, and magic and dealt with familiar spirits and wizards: he wrought much wickedness in the sight of the LORD, to provoke his to anger. "