For the issuance of Rs 10,000-denomination bonds, issuers have to appoint a merchant banker, a regulatory requirement which pushes costs higher, making the issues less attractive, they opined.
”We could therefore see more frequent and smaller bond issuances, which over time should help deepen the corporate bond market. Online bond portals could particularly benefit as a wider range of smaller bond issues becomes available to investors,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.
Srinivasan said the Rs 10,000 face-value private placement route was so far not attractive to issuers, as the mandatory merchant banker requirement added to costs and made such issues less viable.
”If implemented, removing this requirement for eligible issuers will make it easier and quicker for companies to raise funds through bonds,” he said.
Nikhil Aggarwal, founder and group CEO of Grip Invest, said most AA and AAA-rated bonds are currently issued at a face value of Rs 1 lakh and above, restricting participation from retail investors due to the ticket size.
”With this relaxation, high-rated issuers can now consider doing small-size bond issuances just for retail investors at Rs 10,000 face value,” Aggarwal said.
On August 27, Sebi proposed granting an exemption from mandatory appointment of a merchant banker for small-value debt issued through private placement by listed entities.
The move is aimed at reducing compliance costs and facilitating market development.
The current rule requires issuers to appoint at least one merchant banker for private placements of debt securities or non-convertible redeemable preference shares with a face value of Rs 10,000.
This increases the cost of capital for issuers, eroding the economic viability of planned issuances and discouraging frequent small-value debt issuances, Sebi said in its consultation paper.
Accordingly, Sebi has proposed to exempt small-value debt issues from the requirement to appoint merchant bankers, subject to certain conditions.
The exemption would be available to issuers registered with a financial sector regulator, such as Sebi, RBI, Irdai or PFRDA and listed on a recognised stock exchange for at least one year.
The issuer must also have no defaults during the last three financial years and the current financial year relating to repayment of deposits or interest, redemption of preference shares or debt securities, dividend payments, or repayment of term loans and interest.
The proposed exemption would be limited to senior, unsubordinated and secured debt carrying a first or pari passu charge on identifiable assets of the issuer and rated at least AA- on the date of private placement.
