Market Regulator likely to let cos use stock exchanges to sell bonds directly to investors, including retail investors, any time and as many times during a financial year, after filing a single prospectus Sugata Ghosh & Reena Zachariah ‘Bond tap’, which gives corporates the flexibility to time the market, prune cost, and dramatically cut down on paperwork for raising money, will soon be a reality in India.
Capital market regulator Sebi is preparing the ground to allow ‘on tap public issue of bonds’ — a mechanism that will let corporates use stock exchanges to sell bonds directly to investors, including retail investors, any time and as many times during a financial year, after filing a single prospectus. “After filing the tap bond issue prospectus, a corporate can decide when to enter the market. It can be multiple times during a financial year depending on the fund need and market appetite... as the name suggests, it’s turning the tap on or off. Such issuances could be a cheaper, and certainly a far quicker way to raise debt capital,” a person aware of the plan told ET.
“It’s like a secondary sale of a primary issuance, similar to an offer for sale in PSU divestments. The stock exchange platform would be used to invite investors,” he said. According to a Sebi official, the regulator is exploring the basic framework for ‘on tap public issue’ and may soon invite feedback from market participants on the subject. On tap issues would offer greater leeway that shelf-prospectus which currently allows corporates to issue bonds by using the same document multiple times. In ‘tap’, unlike a ‘shelf ’, a string of formalities like dealing with the registrar, merchant banker, or issuing new advertisements and application forms can be done away with. On tap market, which thrives in financial centres like London, would particularly benefit certain sectors like non-depositing taking non-banking finance companies which are regular issuers, said Kaushik Mukherjee, partner at the law firm Shardul Amarchand Mangaldas. “On tap market can also benefit small issuers who otherwise find the cost of fund raising prohibitive. It’s a step towards a deeper bond market,” said Rajesh Gandhi, Partner, Deloitte.
NEW CURBS HURT INFLOW
The idea is being discussed at a point when the bond market is grappling with conflicting regulatory moves. On one hand, the Securities and Exchange Board of India recently halved the listing time for corporate bonds to six days and introduced the mechanism where funds are debited from investors’ accounts only after allotment of securities. On the other hand, few months ago, the Reserve Bank of India brought in fresh investment restrictions — which are aimed at curbing concentration of investments and possible round-tripping of money stashed abroad in the run-up to the elections. Besides, rising US bond yields, the new rules are believed to have contributed to the recent bond selloffs by foreign portfolio investors.
The Economic Times, 27th August 2018
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