Sebi proposes new norms for public issue of InviTs, additional tier-1 bonds

Puts in safeguards for issuance of these bonds to retail investors

The Securities and Exchange Board of India (Sebi) has proposed new regulations for public issue of 'core capital' instruments by banks and for the public issue of Infrastructure Investment Trusts (InviTs).

The proposed norms for retail or public issuance of Additional Tier-1 (AT1) bonds set the minimum investment at Rs 2 lakh, due to the additional risk with these as compared to other debt products. “To ensure only well-informed retail (individual) investors, with adequate risk tolerance level, subscribe to these," explained Sebi in the draft norms, issued on Friday.

Last year, the Reserve Bank had allowed banks to issue AT1 instruments to retail investors. Sebi's committee on corporate bonds had deliberated on the additional requirements for and disclosures by banks for doing so.

For InviTs, Sebi has proposed that disclosures in the offer documents and draft papers be kept in the public domain for at least 21 days. The allocation in the public issue to qualified institutional buyers (QIBs) is proposed to be capped at 75 per cent. An investment manager can allocate up to 60 per cent of the portion available for allocation to QIBs to anchor investors.

The issue would need to be kept open for at least three working days but not more than 30 days.

Sebi also proposed no InviT make a public issue of units if it or any of its sponsors, investment manager or trustee was barred from accessing the capital market by it or is a wilful defaulter as defined by the Reserve Bank.

For AT1 bonds, banks issuing Perpetual Non-Cumulative Preference Shares (PNCPS) and Perpetual Debt Instruments (PDIs) to retail investors will need to clearly disclose in the prospectus under a 'Disclaimer' head about the risk characteristics of these. “It may be specified that PNCPS and PDIs are relatively risky debt instruments and are significantly different from term deposits offered by banks,” Sebi said.

Also, “banks issuing such AT1 instruments and having any outstanding issues of PNCPS and/or Innovative Perpetual Debt instruments (IPDI) under the Basel-II framework shall also make adequate disclosures showing distinction between Basel-II and Basel-III perpetual instruments,” Sebi has proposed.