A debut hospital issuer would be rated A on its own. A parent guarantee costing 0.5% a year would lift it two notches and save 70 basis points of coupon. Is the guarantee worth buying on a Rs 400 crore five-year bond?

Yes, narrowly: it saves 20 basis points, about Rs 0.8 crore a year, worth about Rs 3.2 crore over five years. The coupon falls 70 basis points and the fee costs 50. The saving vanishes if investors price the guaranteed bond more than 20 basis points wide of a plain AA- issuer, which guaranteed paper often is. For the group as a whole the fee is an internal transfer, so the full 70 basis points is saved.

A lower coupon, because investors now look to the parent's balance sheet as well as Ilvani's. A credit enhancementAnything that improves a bond's chance of being repaid beyond the issuer's own strength, such as a guarantee, collateral or a reserve account. is worth buying only when the coupon it saves is larger than what it costs. A young person renting a flat with a parent as co-signer may get a lower deposit; whether it is worth the parent's fee, if the parent charges one, is simple arithmetic. Here: 70 basis points on Rs 400 crore is Rs 2.8 crore a year; the fee of 50 basis points is Rs 2.0 crore.

Three things. First, investors rarely price a guaranteed bond exactly like the guarantor's own bonds: they charge a little for the extra paperwork, the question of how fast the guarantee pays, and smaller liquidity. If that gap is more than 20 basis points, the guarantee costs more than it saves. In India a rating that relies on a guarantee is shown with a credit enhancement suffix, which some investors treat differently; confirm the current rating rules before relying on that. Second, the 70 basis points is an estimate that moves with the market on the day. Third, the fee is charged on the amount outstanding, so it matters that it stops if the bond is repaid early.

Yes. The fee moves money from Ilvani to its parent, so for the group it is not a cost at all: the group saves the full 70 basis points, Rs 2.8 crore a year, provided the parent's own rating is not hurt by taking on the guarantee. Rating agencies count guarantees as contingent debt of the guarantor, so a parent close to a downgrade threshold might pay for this saving with a wider spread on its own bonds. The fee matters most if Ilvani has minority shareholders, who pay their share of it. The view: take the guarantee, but price the bond against the parent's own trading levels, and walk away if the syndicate cannot get within 20 basis points of them.