The Hindu Business Line : SEBI eases norms for corporate bonds

Mumbai, Dec. 3 The Securities and Exchange Board of India has relaxed guidelines for issue of corporate bonds through the public issue route. The new norms permit companies to come out with bonds with below investment grade popularly known as “junk” bonds.

A SEBI circular issued today said that for developing a market for debt instruments, the regulator has decided to allow issuances of bonds below investment grade to suit the risk as well as returns appetite of investors.

SEBI has reasoned that as of now corporates were not allowed to issue bonds below investment grade, but in a disclosure-based regime, it should be left to the investor.

The amendments now allow companies to get public or rights issues of debt instruments rated by one credit rating agency instead of two agencies, as is the case now.

“With a view to reducing the cost of issuance of debt instruments, it has now been decided that credit rating from one credit rating agency would be sufficient,” said a SEBI circular.

Structural restrictions currently on debt instruments such as those on maturity, put/call option on conversion will now be removed.

The provisions of the SEBI (Disclosure and Investor Protection) guidelines, 2000 have been amended for allowing these changes.

Currently, more than 90 per cent of the debt securities are issued through the private placement route, said analysts. “It has been left to the investors to decide to invest in sub investment grade debt, subject to adequate disclosures by the issuer in the offer document. This would enable greenfield projects to raise debt through the public/rights issue route, which under the previous regime was not possible due to sub-investment grade credit rating,” said Mr A.K. Mittal, Managing Director, AK Capital Services

Mr Ritesh Jain of Kotak Mahindra AMC, said the new norms may not make much difference, since such public corporate bond issues are rare and may happen just once in a few months.

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