The Securities and Exchange Board of India ( Sebi) has proposed aframework for public issuance and trading of convertible securities by both listed and unlisted companies. Such securities are debt instruments that can be converted into equity at a later date. Investors get paid interest from the issuer till these are converted into equity.
Indian companies are allowed to raise capital through convertible securities, but the lack of a detailed framework has prevented these from being as popular as Initial Public Offerings ( IPOs) of shares or a rights issue. Following the Sebi board approval on Monday, the regulator issued a consultation paper on Tuesday.
Based on feedback from investment bankers, Sebi has proposed an issue of convertible securities, with a maximum tenure of five years.
Currently, there is no specific provision on this, except for financing of a group company, where the maximum tenure can be 18 months.
Sebi has sought feedback on whether to allow pricing of such securities to be done through either the book- building route or on a fixed- price basis. And, whether these be treated as debt instruments, so that debt regulations apply, or as equity and, hence, comply with the Sebi Issue of Capital and Disclosure Requirements regulations.
It has also proposed to allow issue of these by unlisted companies, provided the instruments be listed on the institutional trading platform (ITP). Currently, ITP is used for listing of smaller companies without necessarily doing an IPO.
Business Standard, New Delhi, 2nd Dec.2015
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