What Modeling Skills are Needed For an Analyst Working in Debt Capital Market?

Capital Markets

At the very onset, let us tell you that one does not need to have extensive skills in modeling especially in a debt- capital- markets job role when working for such a firm. However, modeling skills will be required if your data needs cleaning, formatting and then analysis. Most firms use databases on equity research that are procured from other sources as well as in-house databases and the need for financial modeling is a bare minimum.

It is important though to track the indices for outstanding debt, share repurchases, cash, pending acquisitions, etc. since they foretell debt retirement, future issuances and such which may be required when advising clients.

Any capital market tutorial should begin with answering questions related to what the DCM actually is. Most companies prefer to turn to DCM markets when they need funds for expansion but do not want to trade in their private ownership tag.

The DCM market is ideal since they deal with the sale of units called bonds. For the investors in bonds, this is a fixed-income investment where on redemption they get their money back along with attractive interest. To explain this Capital Market Courses concept assume you buy a bond of 1000Rs face-value with a redemption date of 1 year.

After a year the bond can be redeemed at 100Rs plus the interest rate which may vary. When bond prices fall the interest rate moves up and vice versa. If you get 1100 Rs your interest rate is 10% and is much higher than the FD rate of 6-7 %. The investment is low-risk and earns a fixed interest rate. Such funds are a short-term boon for firms needing funds for expansion without the dilution of ownership. It’s a win-win deal for both.

The different types of bonds:
The bond types are risk-of-default related and can be categorized as

  • The government bonds are at low-risk for default.
  • The companies issued investment bonds also fairly safe from default.
  • The bonds that are high-yield susceptible to risk and hence offering a better rate of returns.

The DCM also handles debt-equity issuances for several purposes. At times on reaching debt-maturity bonds are refinanced or reissued. At other times the expanding company may be looking to reduce cost-to-company capital. A quick look at the statistics espoused by Dealogic shows the bond markets are huge in comparison to issuances.

In 2013 alone, the DCM market figures showed debt-deals worth 6.1 trillion $ versus the 832.2 billion $ equity issuance markets. Compared to its value in 2012 there was a reported surge of 25 percent upwards.

How to get a DCM job and why?
The DCM job is part of the investment banker’s portfolio. This is a highly prestigious and well-paying job with a lot of hard work and challenges thrown in like the inordinately long work hours, the need for classroom and paid training to get placements as IBs and the long attributes list required of an IB.

DCM is way larger than the ECM and banks or firms find this large volume low-returns market needs constant new-deals to be worked on. ECM thrives in sectors like mining, aerospace, etc. The need to generate profits from large volumes of new-deals means more IBs to pitch the issuances and provide services for both investors and clients.
Further half the volumes of debt-issues are from the financial institutions.

Hence, in larger firms, there could be separate CM and ECM divisions, private firms, and public companies divisions, or corporate and government debt markets divisions. The plus point is that a lot of debt-issuances ensure you are not just a salesperson of equity issuance.

The normal workday of the FA is to convince investors and clients for deals. You will need to track trends, make presentations, draft pitches, create models, meet HNI clients, or work in inter-bank funds syndication.  No matter where expect 80-100 hours of stress-laden work per week. No wonder then that nearly half the aspirants for IB jobs quit within 3 years. For the persistent expect to move up every 2-3 years from Analyst to Associate, VP, Director, and CFO or MD.

The DCM and ECM are areas that cover the various roles of an investment banker in capital markets. The Capital Market Training at Imarticus Learning is specially designed to help you hit the ground running.

It has modules for resume building, personality development and interview facing techniques besides a robust financial Capital Market Tutorial curriculum. You will need classroom training, mentorship, certification and experience to help you stand out from the many IB career aspirants. Enroll at Imarticus today.

Share This Post

Subscribe To Our Newsletter

Get updates and learn from the best

More To Explore

Our Programs

Do You Want To Boost Your Career?

drop us a message and keep in touch