With an aim to strengthen the corporate bond market and increase liquidity, Sebi today proposed allowing re-issuance of existing debt securities by a corporate issuer within a specified time period rather than launching a new issue.
The proposed move would help create large stocks in any given issue, thereby helping to create secondary market liquidity, the regulator said in a draft proposal.
The final guidelines would be issued after taking into account public comments, which have been invited till December 25.
The regulator said there should be "enabling provisions re-issuance of the existing bonds by an issuer in a given time period (say over a quarter) and any new issue should preferably be a reissue so that there are large stocks in any given issue, thereby helping to create secondary market liquidity."
Sebi also proposed that an issuer can carry out consolidation and re-issuance of its debt securities, in case the issue is through private placement, the issuer has obtained credit rating from at least one credit rating agency registered with the regulator.
Besides, such ratings should be revalidated on a periodic basis and appropriate disclosures need to be made with regards to consolidation and re-issuance in the Term Sheet.
The views would be taken into account before the market regulator decides on amendments to (Issue and Listing of Debt Securities) Regulations.
The proposal has been made following recommendations made by an expert committee, headed by R H Patil, on corporate bonds and securitisation, which has suggested steps for consolidation of privately placed bonds so as to avoid fragmentation of debt market with multiple issues.
Also, it suggested for re-issuances of corporate bonds which help in creation of large floating stocks which are needed to enhance market liquidity.
In the G-Sec (Government Securities) market, a policy of passive consolidation through reissuance was started in 1999 in order to improve fungibility among the securities and to facilitate consolidation of debt. The larger stock size of securities has greatly improved market liquidity and helped the emergence of benchmark securities in the market.
Given the encouraging results in liquidity in the G-Sec market, this experiment is now recommended to be attempted in the corporate debt market.
The gradual extinguishing of illiquid, infrequently traded and reissue of liquid bonds has helped in improving liquidity in the G-Sec market.
