The Securities and Exchange Board of India (Sebi) has proposed to exempt some listed companies from needing a merchant banker for small-value debt raised through private placement. This proposal aims to cut compliance costs and simplify the issuance process. Currently, issuers must appoint at least one merchant banker for private placements of debt securities or non-convertible redeemable preference shares with a face value of ₹10,000, according to a consultation paper released on Thursday by Sebi.
Key Details
Sebi noted that the limited number of merchant bankers in the debt market can slow down small-value debt issuance. These delays can raise borrowing costs for issuers, especially in a volatile market where yields can change quickly. The proposed exemption would apply only to issuers that meet specific criteria. These criteria include being registered with or regulated by a financial authority in India, being listed on a recognized stock exchange for at least one year, and having no pending fines or penalties from Sebi or stock exchanges.
Background
Additionally, the issuer must have no defaults on specified obligations over the last three financial years and the current financial year. An auditor's certificate will be needed to confirm this status. The debt issued must be senior or unsubordinated and secured by identifiable assets, with a credit rating of at least AA- at the time of placement. These conditions aim to limit the exemption to relatively lower-risk issuers, as stated by Sebi.
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The proposed changes could lead to more small-value debt securities being issued. This may impact the bond market and potentially lower borrowing costs for eligible companies. Investors will be watching for the final decision on this proposal, which could change the landscape for small debt issuance in India.
Based on reporting by: moneycontrol.com, livemint.com