New Delhi, July 21, 2017

Issuance temporarily ceased till FPIs’ utilisation limits in corporate bonds falls below 92%.

Markets regulator Sebi on Thursday indicated that the issuance of Masala bonds, or rupee-denominated bonds in the overseas market, has been temporarily ceased till foreign portfolio investors’ (FPIs) utilisation of investment limits in corporate debt falls below 92%.

“As rupee-denominated bonds issued by Indian corporates overseas are covered under CCDL, issuance of such bonds overseas shall temporarily cease, until the limit utilisation falls back to below 92%,” the Securities and Exchange Board of India (Sebi) said in a circular. CCDL stands for Combined Corporate Debt Limit.

According to latest depository data, FPIs have utilised 92.89% of the available quota of Rs 2.44 lakh crore.

Bond market experts pointed out that the step might be a result of appreciating currency due to huge amounts of foreign inflows into debt and equity.

Sebi indicated that the CCDL shall be available on tap for investment by foreign investors till the overall investment reaches 95%, after which, the auction mechanism shall be initiated for allocation of the remaining limits.

So far, rules indicated that if the FPI utilisation of limits crossed 90%, the remaining limits have to be put up for auction. This is the process which has been followed for government securities that witness significant interest from FPIs.

Sebi stated that in the event the overall FPI investment in CCDL exceeds 95% as indicated by the debt utilisation status updated daily on the websites of NSDL and CDSL, the depositories shall direct the custodians to halt all FPI purchases in corporate debt securities.

Following this the exchanges have to be notified. Auctions will then be conducted on the exchanges — alternatively on the BSE and the NSE. The auction mechanism shall be discontinued and the limits shall be once again available for investment on tap when the debt limit utilisation falls below 92%, Sebi  stated.

[The Financial Express]