Sebi issues new framework to deepen corporate bond market

Liquidity in secondary market for corporate bonds will be increased by minimal number of ISINs

Regulator Sebi on Friday put in place a new framework for consolidation in debt securities as part of its efforts to deepen the corporate bond market.

Liquidity in the secondary market for corporate bonds will be increased by way of minimal number of ISINs (International Securities Identification Numbers).

ISINs code, which has 12 characters, is used for uniquely identifying securities like stocks, bonds warrants and commercial papers.

Generally, investors trade in corporate bonds that are freshly issued by a particular issuer. As a result, the outstanding securities of the same issuer become mostly illiquid.

In order to increase liquidity as well as ensure that an issuer's ability to raise funds through debt securities is not curtailed, Sebi has focused on minimising the number of ISINs.

Under the new framework, an issuer will be permitted a maximum of 17 ISINs maturing per financial year, the Securities and Exchange Board of India (Sebi) said in a circular.

A maximum of 12 ISINs maturing per financial year will be allowed only for plain vanilla debt securities. Within the limit of 12, an entity can issue both secured and unsecured non-convertible debentures while no separate category of ISINs will be provided to them.

Furthermore, an entity can issue up to five ISINs every fiscal "for structured debt instruments of a particular category".

Quick look

• Sebi focused on minimising number of ISINs (international securities identification numbers)
• Issuers permitted maximum 17 ISINs maturing per fiscal; Maximum 12 ISINs maturing per fiscal will be allowed only for plain vanilla debt securities
• Entities can issue up to 5 ISINs every fiscal for structured debt instruments of a particular category
• Issuer can for once make a choice of having bullet maturity payment or make staggered payment of maturity proceeds within a particular fiscal
• Issuer will have 6 months to make enabling provisions in Articles of Association to carry out consolidation and re-issuance of debt securities
• Issuer have to submit statement to bourse where its debt securities are listed, as well as to depository containing data about ISIN number, issuance as well as maturity date and coupon rate within 15 working days

Sebi said these restrictions will not be applicable to debt instruments that are used for raising regulatory capital and affordable housing as well as capital gains tax bonds.

To address the issue of bunching of liabilities, the regulator said the issuer can as a one-time exercise make a choice of having bullet maturity payment or make staggered payment of the maturity proceeds within a particular financial year.

The watchdog also said issuer would have a time period of six months to make an enabling provision in its Articles of Association to carry out consolidation and re-issuance of debt securities.

Also, an issuer would have to submit a statement to the stock exchange where its debt securities are listed, as well as to the depository containing data about ISIN number, issuance as well as maturity date and coupon rate among others within 15 working days.

Besides, stock exchange would have to upload the same on its website as well as the Integrated trade Repository for corporate bonds.

Trading of corporate bonds in the secondary market has gone up in recent years and stood at Rs 14.7 lakh crore in the last financial year. The amount was just Rs 1.48 lakh crore in 2008-09.

However, liquidity in the secondary market for these bonds has not picked up much, especially in comparison to primary market issuances.

With more entities tapping the route for mopping up funds, private placement of corporate bonds rose to Rs 6.4 lakh crore in 2016-17 whereas the same was at Rs 1.18 lakh crore in 2007-08.