Sebi clears new framework to deepen corporate bond market

Sebi today approved a new framework for consolidation and reissuance of debt securities as part of its efforts to deepen the corporate bond market.

Liquidity in the secondary market for corporate bonds will be increased by way of minimal number of ISINs (International Securities Identification Numbers). ISINs are used to number specific securities.

Under the framework, approved by the Sebi board during its meeting here, an issuer will be permitted a maximum of 12 ISINs maturing per financial year.

Within the limit of 12, an entity can issue both secured and unsecured non-convertible debentures while no separate category of ISINs will be provided to them.

Furthermore, an entity can issue up to five ISINs every fiscal "for structured debt instruments of a particular category".

Sebi said these restrictions will not be applicable to debt instruments that are used for raising regulatory capital and affordable housing as well as capital gains tax bonds.

Generally, investors trade in corporate bonds that are freshly issued by a particular issuer. As a result, the outstanding securities of the same issuer become mostly illiquid.

Hence, the plan is being put in place to minimise the number of ISINs. To address the issue of bunching of liabilities, the regulator said the issuer can as a one-time exercise make a choice of having bullet maturity payment or make staggered payment of the maturity proceeds within a particular financial year.

"Active consolidation i.e. consolidation of existing outstanding debt securities may be made recommendatory at present, which may be reviewed at a later stage," the regulator said in a release. "Such active consolidation can be done through switches and conversion."

The watchdog also said there should not be any clause prohibiting consolidation and re-issuance in the Articles of Association of the issuer.

Trading of corporate bonds in the secondary market has gone up in recent years and stood at Rs 14.7 lakh crore in the last financial year. The amount was just Rs 1.48 lakh crore in 2008-09. However, liquidity in the secondary market for these bonds has not picked up much, especially in comparison to primary market issuances.

With more entities tapping the route for mopping up funds, private placement of corporate bonds rose to Rs 6.4 lakh crore in 2016-17 whereas the same was at Rs 1.18 lakh crore in 2007-08.