Sebi proposes making e-book must for pvt placement debt

Currently, issuers directly negotiate private placements with QIBs and HNIs or sell them over telephone before listing

Capital markets regulator Sebi today proposed norms to make electronic book mandatory for all private placement issues on debt basis, having a threshold of Rs 500-1,000 crore.

The proposals are aimed at improving the "efficiency, transparency of the price discovery mechanism and also reduction of cost and time taken for such issuance."

The move comes after the board of Securities and Exchange Board of India (Sebi), earlier this week, approved a proposal to introduce primary market debt offering through private placement on electronic book.

To begin with, the electronic book may be provided as an alternative to the existing mechanism.

Subsequently, based on the performance and acceptability of such a book, this could be made mandatory for all issuers for issuance of privately placed non-convertible debentures (NCDs), which are proposed to be listed.

"To make electronic book mandatory for all private placement issues having a threshold of Rs 500-Rs 1,000 crore in terms of amount being raised," Sebi said in a draft paper.

It is proposed that such an electronic book may be created by entities to be named as Electronic Book Providers (EBPs).

Entities such as stock exchanges, depositories and merchant bankers with net worth above Rs 100 crore may apply to Sebi for setting up EBPs.

The public comments have been invited till December 18.

"Usage of electronic book by investors for trading securities in Indian markets have demonstrated that the benefits can percolate in terms of efficient price discovery, reduction in timelines, reduction of cost, transparency, etc," Sebi noted.

The issuances through private placement bonds have increased from Rs 1.73 lakh crore in 2008-09 to Rs 4.04 lakh crore in 2014-15.

In 2014-15, private placement accounted for 98 per cent of debt securities issuances that have been subsequently listed.

Generally, private placement issues are negotiated by the issuers directly with the investors such as QIBs, HNIs or placed through the arrangers over-the-telephone market and then listed on stock exchanges.

It was felt that this mechanism may lack transparency and is an informal way to discover price.

Issuing the draft paper, Sebi said the issuer should enter into an agreement with the EBP, before using its services. The agreement should contain necessary terms and conditions for usage of the book as well as rights and liabilities of both the parties.

The issuer and EBP need to ensure all requisite compliances prescribed under Companies Act, Sebi Regulations with regards to private placement.

EBP need to ensure that there is no public solicitation and the total number of bidders should not exceed 200 (excluding Qualified Institutional Buyers).