Sebi steps in to ensure cheap & fast bond issues

With corporate debt market failing to take off, market regulator Sebi has proposed...

With corporate debt market failing to take off, market regulator Sebi has proposed simplifying the corporate debt issuance process in a bid to reduce costs and enhance transparency in such offerings.

In a consultative paper on the proposed Draft SEBI (Issue and Listing of Debt Securities) Regulations, 2008, the regulator said SEBI said the disclosure requirements would be bifurcated into a more detailed and simplified one, depending on whether the equity securities of that company were already listed. If a company whose shares are already listed wants to issue debt instruments, minimal incremental disclosures would be sufficient, as large amount of the company related information is already in the public domain.

For companies whose equity is not listed, raising debt capital would require detailed disclosures, but that would also be fewer than equity securities disclosures. Sebi said the proposed regulations would cut the regulatory burden on issuing companies without compromising on the rights of investors. “Since vast amounts of company information is already available in the public domain on issuance of equity, the additional quantum of information needed when the same company comes out with a debt issue will be marginal,” it said.

The regulator said that high levels of disclosure were important for equity offerings as equity was the residual interest of shareholders in a company, but the owners of debt instruments were by contrast, satisfied with timely payment of interest and capital and the solvency of the issuing company. As part of the draft regulation, Sebi has proposed that issuers making public offers of debt securities would continue to file draft offer documents, which would be put on the websites of Sebi and exchanges or seven days. Private placements, which will be listed, need not file an offer document, but will only be needed to comply with the disclosure norms and the listing conditions.

Sebi said the proposed norms provide for rationalised disclosure requirements and a reduction of onerous obligations attached to such issues. It said the draft regulations were aimed at making a rationalised and stand-alone regulation for providing an enabling regulatory framework for the corporate debt market. “Modifications have been aimed at reducing time and unnecessary burden of issuance of these securities and according flexibility to issuers to structure their instruments, without diluting areas of regulatory concern,” the draft paper said.

Sebi has invited public comments on the draft regulations by January 19 through post and by January 23 via e-mail. The regulations cover issuance and listing of debt securities which are not convertible, either in whole or in part into equity instruments.

In order to develop the corporate debt market further, it is envisaged that issues to 50 or more persons should require mandatory listing and specific disclosures in terms of the proposed Regulations and the corresponding listing agreement.

BOND PROPOSALS

• Listed cos will need only minimal disclosures

• But unlisted cos must make detailed disclosures

• Pvt placements need not file offer documents

• Should meet disclosure and listing norms

• Issues to more than 50 investors must be listed

• Unlisted cos making pvt placement must list these securities

• E-issuance of debt securities to public on the anvil