SEBI’s yet another attempt to give domestic bond market a push

By Rajeev Jhawar (rajeev@vinodkothari.com) [Updated as on September 18, 2018]

In a vibrant market, resides a healthy economy. On the budget day, India sought to expand its bond market beyond the traditional ambit of sovereign debt. In pursuant to this, Securities and Exchange Board of India has initiated to diversify borrowings of Indian corporates by mandating to raise at least a quarter of their incremental funds from the bond market. The regulator came out with a consultation paper in order to address the liquidity problem persisting in the bond market, with an intention to create a robust secondary market for the debt securities in India.

SEBI’s proposal and corresponding inferences

The regulator proposed that listed entities other than scheduled commercial banks, with outstanding long-term borrowings of Rs. 100 crores and a credit rating of “AA and above” and intends to finance itself with long-term borrowings** will have to compulsorily raise 25% of their debt from the bond market from the next financial year, as a part of corroborating the same. Lower rated corporates have been exempted from the framework for the time being due to the limited demand for such securities.

**Further, SEBI has clarified that the term “borrowing” shall mean the borrowings which have original maturity period of more than 1 year. However, such borrowings shall exclude external commercial borrowings (ECBs) and inter-corporate borrowings between a parent and subsidiary. This means that a company taking inter-corporate borrowings from any another company will be included in the definition of borrowing. However, ECBs shall be excluded from the definition of borrowing for every company.

It is believed that if the 25% norm is followed religiously, it would tantamount to increased bond floatation as more companies would be able to access the debt market. Ideally, the move should provide insurance companies, provident funds and pension funds an opportunity to invest in high yielding instruments and open up a new funding avenue for lower-rated companies. Besides, the government might limit corporates’ dependence on banks and the risk associated with it. However, there is a need for an expansion in the investor base for implementation of these rules.

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Integration of Financial Markets and Capital Markets

RBI revamps Directions for issuance of Commercial Paper

By Richa Saraf, legal@vinodkothari.com

The Reserve Bank of India (RBI) vide Notification No. MRD.DIRD.01/CGM (TRS) – 2017 dated August 10, 2017 has issued Reserve Bank Commercial Paper Directions, 2017 (“New Directions”). The new guidelines are in supersession of the existing directions on Commercial Paper in the Master Directions on Money Market (Section II) RBI/FMRD/2016-17/32 dated July 7, 2016 (“Old Directions”). The following table captures the difference between the old and new directions:- Read more

Masala bonds: taking stock of developments so far

By Vallari Dubey (vallari@vindokothari.com)

Background

The Reserve Bank of India (RBI), on September 29, 2015, vide circular RBI/2015-16/193 had issued guidelines allowing Indian companies, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to issue rupee-denominated bond (masala bonds) overseas. Consequently, RBI, on April 13, 2016, vide circular RBI/2015-16/372 had reduced the tenure of such bonds to 3 years (previously 5 years) and allowed borrowing upto Rs. 50 billion (previously $ 750 million) under the automatic route. Now vide circular RBI/2016-17/316, RBI has again modified the tenure of these bonds. Interestingly, the tenure has now been segregated into 3 years and 5years respectively; while 3 years are for Masala Bonds raised upto USD 50 million equivalent in INR per financial year and 5 years for bonds raised above USD 50 million equivalent in INR per financial year.

Since its inception only Housing Development Finance Corporation Limited (HDFC) and National Thermal Power Corporation Limited (NTPC) have successfully listed its masala bonds on the London Stock Exchange worth INR 78 billion1 ($1.21 billion) and INR 20 billion ($300 million) respectively. Though HDFC’s masala Bonds are traded on London Stock Exchange (LSE), NTPC’s bonds are traded on both LSE and Singapore Stock Exchange (SGX).

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RBI adds more masala to the bonds: issues circular to further rationalise Masala Bonds Framework, by Vallari Dubey

The Reserve Bank of India vide its powers given under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999, has issued a circular A. P. (DIR Series) Circular No.47, dated 7th June, 2017[1] bringing in fresh amendments to the existing provisions for ‘Issuance of Rupee denominated bonds overseas’ and as we call it in normal parlance, ‘Masala Bonds’. Read more

SEBI formalises guidelines for issuance of Green Debt Securities in India, by Abhirup Ghosh

The Securities and Exchange Board of India (SEBI) on 30th May, 2017 came out with a circular stating the disclosure requirements for issuance and listing of Green Debt Securities in India (hereinafter referred to as “Circular”)[1]. Earlier in December, 2015, SEBI had come out with a concept paper for issuance of Green Bonds in India (hereinafter referred to as “Concept Paper”)[2]. The Concept Paper brought out the need for enhanced disclosures for issuance of green bonds so as to differentiate it from other form of debt securities issued and listed in India and the Circular is largely in line with the concept paper. Read more