SEBI clears norms for green bonds
Other | Photo Credit: Reuters

To help companies raise funds through green bonds for investment in renewable energy space, regulator Sebi today approved new norms for issuance and listing of such securities in the stock market.

The move is aimed at helping meet the huge financing requirements worth USD 2.5 trillion for climate change actions in India by 2030.

The new norms, which were approved by Sebi's board at a meeting here today, would also help the investors take informed investment decisions and bring in uniformity in the disclosure requirements, the regulator said in a statement.

Sebi said the financing needs of renewable energy space in the country requires new channels to be explored which can also help in reducing the cost of the capital.

The new norms have been finalised after taking into account public comments to a draft paper issued by Sebi in this regard last month. A decision to start the consultation process was taken in Sebi's last board meeting on November 30, 2015.

The regulator said the issuance and listing of green bonds will be governed by the Sebi regulations for debt securities but the issuer of green bonds would have to make incremental disclosures. The definition of green bonds would be specified by Sebi from time to time.

The new norms also provide for requirement of independent third party reviewer, certifier or validator for reviewing, certifying and validating the pre-issuance and post-issuance process including project evaluation and selection criteria.

However, this has been kept optional.

Sebi also said that an escrow account would not be mandatory for issuance of such bonds, but issuer will have to provide the details of the systems and procedures to be employed for tracking the proceeds of the issue, including the investments made and earmarked for eligible projects. The same would need to be verified by the external auditors.

Issuer would have to make disclosures including use of proceeds, list of projects to which Green Bond proceeds have been allocated in the annual report and periodical filings made to the stock exchanges.

The draft paper had earlier proposed that the proceeds of Green Bonds be credited to an escrow account and will be utilised only for the stated purpose, as in the offer document.

A green bond is like any other bond where a debt instrument is issued by an entity for raising funds from investors.

However what differentiates a green bond from other bonds is that the proceeds of a Green Bond offering are 'ear-marked' for use towards financing green projects.

As of now, there were no standard norms for green bonds.

Norms for mutual funds

To safeguard investors' interest, markets regulator Sebi today tightened its norms for mutual funds' exposure to riskier corporate bonds including by capping the investment limit in bonds of a single company at 10 per cent.

The single sector exposure limit would also be lowered from 30 per cent to 25 per cent, while group-level investment limits of 20-25 per cent have been also been introduced for the mutual funds investing in debt securities.

The issue of reducing the MF exposure limit for debt schemes caught Sebi's attention after JP Morgan Mutual Fund got into troubles due to its exposure to debt securities of Amtek Auto, while a few other fund houses have also faced similar problems with regard to corporate bonds of a few other distressed firms.

At a meeting here today, Sebi's board undertook a review of the prudential limits on investments by mutual funds and approved a wide range of changes which would be applicable to all fresh investments by any new or existing scheme.

The fund houses would be given appropriate time to confirm that their schemes are in compliance with the new investment restrictions.

The steps will mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades, put mutual funds in a better position to handle adverse credit events.

It would also provide mutual fund investors with enhanced diversification benefits, the Securities and Exchange Board of India (Sebi) said in a statement after the board meeting.

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