# **1. Introduction**

Domestic nongovernment bond markets (NGBMs)<sup>1</sup> can serve as an important long-term financing source for developing key sectors, such as infrastructure and housing, in which many emerging market countries (EMCs) face vast shortages.<sup>2</sup> Private sector solutions through NGBMs are taking on an increasingly critical role to help bridge these types of financing gaps, especially in light of growing constraints on government budgets and banks as a result of the global financial crisis and new regulatory developments. Yet, NGBMs remain underdeveloped and in need of further strengthening in many countries, especially those that are less developed. Increasing the supply of instruments, is one of the most important building blocks in developing the NGBM but also often the most common challenge in EMCs.

A _hybrid offer regime (HBOR)_ , an issuance framework for offers targeted at institutional investors, as will be explained below, is an important instrument in a regulator’s toolkit to encourage NG bond issuance and help increase this supply. Its main premise is the sophistication of institutional investors, on which the regulator can rely to reduce certain issuance requirements and thereby facilitate the issuance process. Introducing such regimes is thus an important measure for NGBM development but its implementation requires careful assessment of the country context, with the most important element being the quality of institutional investors and their level of capacity. Where such capacity and sophistication is lacking, which is sometimes the case in EMCs, these regimes would not be appropriate.

This paper analyzes eight cases of HBORs based on a survey conducted by the World Bank Group (WBG) originally in collaboration with the International Organization of Securities Commissions (IOSCO),<sup>3</sup> which later included several follow-up inquiries with select countries. The countries analyzed include three developed market cases—the European Union,<sup>4</sup> Israel, and the United States—and five emerging market cases—Brazil, Chile, India, Malaysia, and Thailand. Although some of the countries included in this note do not necessarily have sizeable corporate bond markets from a global perspective, they exhibit interesting HBOR models that can serve as additional examples for EMCs to consider as they decide on an appropriate path for stimulating their nongovernment (NG) bond issuance. Moreover, many of the EMCs adopted improvements too recently to show a meaningful impact on the size and diversity of their corporate bonds; though, some do show important positive trends, as will be discussed in Section 5.

> 1 Nongovernment bonds is used as a broad term to cover fixed income instruments, simple or structured, issued by any entity not directly linked with the federal government, such as corporations, municipalities, state-owned enterprises, projects (e.g., infrastructure), special purpose vehicles (e.g., securitizations), trusts, and funds.

> 2 For example, infrastructure investment needs in EMCs are estimated at close to $30 trillion over the next 15 years (through 2030) just to keep up with estimated global growth rates of 3.3%. (McKinsey Global Institute 2013) 3 The early findings of the study were included in the IOSCO report “Development of Corporate Bond Markets in Emerging Markets” (November 2011) produced in collaboration with the WBG.

> 4 We focus our analysis on the EU-wide securities regulatory framework instituted by the Prospectus and Transparency Directives.

4