SEBI lays down debt exposure limits to mutual funds in bonds

In order to prevent mutual funds' overexposure to bonds issued by corporates, the Securities and Exchange Board of India (SEBI) on Monday said it has decided to put a ceiling at issuer/group/sector levels.

In a statement, SEBI said its board met here and reviewed the prudential limits on investment by mutual funds and decided on limits/restrictions that are to be applicable to all fresh investments by a new or an existing scheme.

Appropriate time will be given to the asset management companies (AMC) to confirm to the new norms, it added.

The SEBI Board has decided to amend SEBI (Mutual Funds) Regulations, 1996 to merge credit exposure limits for single issuer of money market instruments and non-money market instruments at scheme level.

The regulations will be amended so that the single issuer limit is fixed at 10 percent of the net asset value (NAV) and at 12 percent of NAV after trustee approval.

The board decided to issue a circular to introduce group level limits for debt schemes at 20 percent of NAV extendable to 25 percent of NAV after trustee approval. Government-owned public sector units/banks and public financial institutions are exempted from the group level limits.

The single sector exposure limit is brought down to 25 percent from the current levels of 30 percent of the NAV.

The markets regulator also decided to reduce additional exposure limit provided for housing finance companies in finance sector from 10 percent of NAV to five percent of NAV.

The board also approved introduction of primary market debt offering through private placement on electronic book. The electronic book mode will be mandatory for private placement of bonds above Rs.500 crore.

It also decided to provide an exit opportunity to dissenting shareholders where a company decides to change its objects to utilise the unutilised amout of money raised.

This would be applicable in those cases where the proposal is dissented by at least 10 percent of the shareholders and if the amount to be utilized for the objects for which the prospectus was issued is less than 75 percent of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

The exit price shall be based on the pricing parameters applicable in case of exit offer given to the existing shareholders in terms of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which is applicable for both frequently and infrequently traded shares. The relevant date for pricing shall be the date of the board meeting in which the proposal for change in objects is approved.

Companies with no identifiable promoters or shareholders having control would be exempted from this requirement.