In a major relief, the market regulator SEBI has allowed mutual funds to meet its norms on valuation of perpetual bonds in a time bound manner with the life span of bonds increasing over the years.

On March 10, SEBI had stated that the maturity of all perpetual bonds shall be treated as 100 years from the date of their issuance for the purposes of valuation.

Based on the representation of the mutual fund industry to consider a glide path for the implementation of the policy, it has been decided that the deemed residual maturity for the purpose of valuation of existing and new bonds issued under Basel III framework will be achieved over a period of two years.

In the financial year ended March 2022, the AT-1 bonds will be valued at 10 years or the call date mentioned in the bond. From April to September 2022, it will be valid at 20 years and from October 2022 to March 2023 it will have a life span of 30 years. Finally, from April 2023, the perpetual bonds will be valid at 100 years.

All Basel-III tier-two bonds will be valid at the contractual maturity.

Further, if the issuer does not exercise the call option for any of the perpetual bonds, then the valuation and calculation of duration shall be done considering a maturity of 100 years from the date of issuance for AT-1 bonds and contractual maturity for Tier-2 bonds, said SEBI.

If the non-exercise of call option is due to the financial stress of the issuer or if there is any adverse news, the same shall be reflected in the valuation, it said.

The Association of Mutual Funds in India has been advised to issue detailed guidelines with respect to valuation of bonds issued under the Basel III framework, which shall be implemented by April 1, 2021.

The change in rules comes after the Finance Ministry had raised concerns over the duration of perpetual bonds.

Related Topics
comment COMMENT NOW