Disclosure Seen Hurting Placements Mart

Regulating private placement of debts through more disclosures will strangle the market and delay the fund raising process, according to merchant bankers.

Both the Reserve Bank of India and the Securities and Exchange Board of India, prompted by the finance ministry, is planning stricter regulations for the Rs 100,000 crore private placement debt market, which is seen as unregulated with not much information available to the public.

According to merchant bankers, though more information is required as to which corporate has raised what kind of debt, the amount involved and the interest rates on offer, disclosures on the lines of a public issue prospectus will kill the market.

"We had sometime back suggested to the regulators that a database on placements be created with respect to the outstandings, among others," a top official with a leading merchant banking firm said.

"Private placements have to be registered somewhere," he said. However, merchant bankers have received a tepid response from the regulators.

But the recent events in the capital market have made the authorities aware of the possible irregularities in this segment and it is in this light that tighter regulations are being proposed.

"The authorities have misunderstood us," industry sources said, pointing out that their intention had been to create a database and not push for financial disclosures by companies raising funds.

Merchant bankers feel that the kind of subscribers to such private placements - banks, financial institutions and mutual funds - have enough resources to carry out their own due diligence and get the required information on the companies. "They certainly do not need such disclosures," merchant bankers said, adding that it would just add to the cost of such issuances and delay the entire process.