Sebi proposes easing merchant banker rule for select debt issuers

Mumbai: The Securities and Exchange Board of India Thursday proposed exempting certain listed issuers from the mandatory requirement of appointing a merchant banker for raising small-value debt through private placement, potentially helping lower issuance costs.

Sebi defines small-value debt as debt securities or non-convertible redeemable preference shares issued at a face value of ₹10,000.

The regulator said the current mandatory appointment of a merchant banker creates a disproportionate cost burden, particularly for smaller issuances.

It also said the limited number of merchant bankers in the debt segment and delays in executing private placements, which can be costly when market yields change rapidly.

"This...increases the cost of capital for issuers, eroding economic viability of planned issuances, thereby, discouraging frequent small-value debt issuances," Sebi said in a discussion paper.

Under the proposal, the exemption will be available only to select issuers meeting certain eligibility criteria.

The issuer must be regulated by a financial sector regulator in India. It must also have been listed in any segment on a stock exchange for at least one year, with no pending penalties imposed by Sebi or stock exchanges for violations of listing regulations , it said.

Further, the issuer should not have defaulted during the previous three financial years or the current financial year on repayment of deposits, debt securities, preference shares or term loans, or on related interest and dividend obligations. An auditor's certificate confirming this would have to be submitted to the stock exchange, the regulator said.

The proposed exemption would also be restricted to senior debt secured by a first or pari passu charge on identifiable assets and carrying a credit rating of at least AA- at the time of the private placement.

The regulator said listed issuers are already subject to continuous disclosure and regulatory oversight requirements. Many issuers in the listed debt market are also regulated by the central bank and other financial sector regulators.