Corporate bonds may take book-building route

Sebi initiates measures to revive debt market.

The Securities and Exchange Board of India (Sebi) is working on a slew of measures to revive the corporate debt market. The measures include introducing the book-building process for bond issues similar to the one prevalent in the equity market and simplifying various other procedures.

Corporate bonds have not been able to generate interest among retail investors even after the capital market regulator announced many measures in the recent past to activate the market. 

BREATHING LIFE

A book-building model for corporate bonds mooted

Sebi committee considering streamlining procedures for primary bond issues

Valuation methodology for floating rate issues in the works

Listing agreement norms related to reporting deals on stock exchanges under review

The Sebi committee on corporate debt is considering a proposal to introduce the book-building process for price discovery of debt issues. In the case of equity, companies going public announce a price range within which their offers are invited in consultation with lead managers. In the case of bond issues, bond ratings, the interest rate outlook and other issues that determine the safety of investors’ money can help investors in deciding the rate at which they should bid.

The committee is also considering a proposal that can save issuers the cost of printing a prospectus. It is mulling to accept the rationale accorded by a rating agency as the prospectus in case of listed companies floating bonds. Rating agencies may be asked to provide a detailed rationale for the purpose.

There is also a proposal to have a relook at the terms of the listing agreement for bond issues. At present, all bond issues and deals have to be reported to stock exchanges, but this has not helped in developing the bond market. The Sebi panel is looking into the issues, where deals are not reported. on Wednesday, more than 95 per cent of the bonds are issued on a private placement basis, with the retail participation virtually non-existent.

A lack of details about bonds is a reason for the absence of retail investors in the bond market. “For instance, information on bond yields and maturity may be available, but if the bond consists of any put or call option information on that should also be available to investors,” said Rama Vasantharajan, head of fund services and fixed income research, Crisil.

In 1996, a financial institution had floated a bond at 16-per cent yield and when interest rates started falling, it opted for an option to pre-pay the bonds, causing panic among investors.

Vasantharajan also said retail investors should be offered some kind of an insurance for their bond investments to give them the comfort of investing in the market. This can be in the form of bond insurance or a credit default swap or the issuer can opt for a floating rate bond.