Capital market regulator Securities and Exchange Board of India (SEBI) is looking at allowing companies to re-issue corporate bonds to enhance market liquidity besides consolidating privately placed bonds to avoid fragmentation of debt markets with multiple issuances.
It cited the recommendation of an expert committee chaired by RH Patil on corporate bonds and securitisation and said it is proposing to put in place, an enabling framework for consolidation and reissuance of corporate bonds.
As of now corporate issuers are not permitted to re-issue existing tenors.
SEBI noted that in the G-Sec (Government Securities) market, the gradual extinguishing of illiquid, infrequently traded and reissue of liquid bonds has helped in improving liquidity.
In the G-Sec market, a policy of passive consolidation through reissuance was started in 1999 in order to improve fungibility among the securities and to facilitate consolidation of debt.
SEBI said this needs to be taken forward in corporate bonds market and it is proposed that there should be enabling provisions re-issuance of the existing bonds by an issuer in a given time period (say over a quarter) and any new issue should preferably be a reissue so that there are large stocks in any given issue, thereby helping to create secondary market liquidity.
It has now proposed to amend Chapter II of the (SEBI (ILDS) Regulations) to incorporate a sub-regulation for consolidation and re-issuance subject to certain conditions.
SEBI has said the conditions include that there is such an enabling provision in its articles under which it has been incorporated; the issue is through private placement; the issuer has obtained credit rating from at least one SEBI-registered credit rating agency and is disclosed; such ratings should be revalidated on a periodic basis and the change if any, shall be disclosed; appropriate disclosures are made with regards to consolidation and re-issuance in the term sheet.
SEBI has asked for public comments on the proposals latest by December 25.
(Edited by Joby Puthuparampil Johnson)