New Delhi, Februay 2, 2017

Markets regulator SEBI today proposed a mechanism for consolidation in corporate bonds for private placement of debt securities and enhancing liquidity.

It has been taking steps regularly to increase liquidity in the secondary market. Last year, it allowed corporates to reissue bonds.

With a view to reducing fragmentation in the corporate bond market, SEBI has come out with a consultation paper for consolidation and re-issuance debt securities. The regulator has sought public comments on the proposal till February 28.

The final regulation would be put in place after taking views of all the stakeholders.

According to SEBI, the primary market for corporate bonds /debt securities has grown since 2007, while the liquidity in secondary market has not been high.

To meet the funding requirements, some of the issuers take recourse in issuing several issues of bonds in a single month/quarter/year. This suggested that the private placement mode of issuance of corporate bond is substantially robust and favoured for raising funds.

The Securities and Exchange Board of India (Sebi) has proposed that issuers can have only one International Securities Identification Number (ISIN) per quarter or every two months.

In case, the restrictions are implemented, it may lead to a situation of liquidity mismatch and bunching of liabilities for the issuer.

"In order to resolve this issue, it is proposed that the issuer can as a onetime exercise make a choice of having bullet maturity payment or in order to avoid bunching of liabilities, the issuer can make equated quarterly payment or equated monthly payment of the maturity proceeds within that financial year," Sebi said in the draft papers.

This will enable the issuers to stagger the redemption amount across the year by amortising the repayments. However, this should clearly be disclosed in the information memorandum

Also, it has proposed that the issuers having large number of outstanding issues and multiple ISINs, should resort to "switching or conversion" to reduce the number of outstanding ISINs in a phased manner.

Sebi has proposing methods of switching or conversion -- Tender offer and Reverse Auction Conversion.

Under the tender offer, the issuer will fix a particular price for the maximum number of debt securities it is willing to purchase and sends a letter of offer to all the holders of debt securities. The issuer will also fix an outer time limit for accepting the offer as well as determine the rate which may be at a premium or discount.

[The Economic Times]