The Securities and Exchange Board of India (Sebi) has proposed exempting certain listed issuers from the mandatory appointment of a merchant banker for small-value debt raised through private placement, aiming to cut costs and delays in the debt market.
In a consultation paper issued on Thursday, the market regulator said the limited availability of merchant bankers in the debt segment and the delays involved in appointing them can also hinder small-value debt issuance. This is particularly relevant in a market where yields can change quickly, potentially raising the issuer's cost of borrowing if a transaction is delayed.
Under the existing framework, issuers of debt securities or non-convertible redeemable preference shares, issued through private placement at a face value of ₹10,000, are required to appoint at least one merchant banker. The proposed exemption, however, is restricted to issuers that meet four conditions.
The issuer must be registered with or regulated by a financial sector regulator in India, including Sebi, the Reserve Bank of India, the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority.
It must also have been listed on a recognized stock exchange for at least one year and have no pending fines or penalties from Sebi or stock exchanges for applicable listing-related non-compliance. No defaultsThe issuer must also have no defaults over the previous three financial years and the current financial year on specified obligations, including debt repayments, interest payments, term loans, deposits and dividends.
An auditor's certificate confirming this will have to be submitted to the stock exchange. The debt being issued must be senior or unsubordinated and secured by a first or pari passu charge on identifiable assets of the issuer. It must carry a credit rating of at least AA- at the time of private placement.
Sebi said these conditions are intended to limit the exemption to relatively lower-risk instruments and issuers with demonstrated repayment capacity. The market regulator has invited public comments on the proposal until 17 September.