Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi on Saturday said that the Insolvency and Bankruptcy Code (IBC) will help boost investor confidence and encourage fund inflows into the corporate bonds market, especially in low-rated instruments.The bankruptcy law was enacted to ensure time-bound settlement of insolvency and enable ease of doing business.
“From an investors’ standpoint, an effective and robust bankruptcy regime is important for developing the corporate bonds market. Investors have been shying away from low-rated corporate bonds and even if the rating is of investment grade, given the high rate of defaults,” said Tyagi who was speaking at the insolvency and bankruptcy summit organised by the Confederation of Indian Industry (CII) here. “Successful implementation of the IBC will increase confidence among investors, including foreign ones, and is likely to increase liquidity in low-rated papers,” said Tyagi.
He said globally bankruptcy reforms has had significant impact on developing corporate bonds market in various parts of the world.“In Brazil the corporate bond market as percentage of GDP increased from 12 per cent to 26.3 per cent, in Russia from 8.1 per cent to 13.1 per cent; it also increased significantly in China and Britain. In our country fund raising from bond was 17.9 per cent of GDP in 2016 and it would be interesting to see the impact of implementation of this code on the corporate bonds market,” said Tyagi.
The Sebi chairman also said the regulator has taken steps to strengthen the rating mechanism followed by credit rating agencies to enhance an early-warning system to identify potential defaulters.“As per the mechanism rating agencies will carry out a review of rating on occurrence of an announcement of material events such as transactions, corporate debt restructuring, and a significant increase in debt levels and then will come out with a press release about the rating action,” said Tyagi. Tyagi said the August 4 Sebi circular has tightened the disclosure norms for listed companies on default of bank loans and other financial intuitions.