To deepen markets and help raise funds for business and infrastructure projects, Sebi today announced a slew of measures including for listing of municipal bonds and for setting up of a global financial hub within India on the lines of Singapore and Dubai.
The markets regulator also made it easier for banks to acquire control in distressed listed companies, by converting their debt into equity, while it tightened the noose on entities indulging in market manipulation and insider trading by selective leak of information at the cost of investors.
Besides, Sebi also announced a roadmap for the new fiscal, beginning next month, with regard to new norms to help young entrepreneurs raise funds through listing of start-ups and crowd-sourcing, while it would streamline and strengthen its enforcement process for better efficiency.
Proposing a new avatar by adopting latest technologies, Sebi said it will tap social media in a big way to reach out to the investors and make it easier for them through measures like e-IPO and Aadhar-based e-KYC initiatives.
Sebi also pitched for allowing pension money into capital markets and creating an enabling environment for REITs (Real Estate Investment Trusts) to flourish, after Finance Minister Arun Jaitley addressed the board members and top officials of the regulatory authority in his post-Budget meeting with them.
Jaitley also reviewed the state of economy and the capital markets and explained his Budget proposals. He discussed the capacity building and other infrastructure needs for merger of commodities regulator FMC with Sebi to create a unified markets regulator.
To safeguard interest of investors, Sebi Chairman U K Sinha said listed companies would need to disclose their board decisions within 30 minutes, while all other ‘material information’ would need to be made public within 24 hours, failing which they would face strict penal action.
Tightening its corporate disclosure norms, Sebi said such disclosures would need to be made “as soon as reasonably practicable”, but not later than the given time limit.
The information, including about material events, would need to be mandatorily disclosed through stock exchange platforms for the benefit of investors, while the companies would have to provide “specific and adequate reply” to queries with respect to rumours and media reports.
The new disclosure requirements are aimed at checking a widespread practice among the Indian companies of selectively leaking the information, including through media and without informing the investors first, for personal gains by promoters and management by way of inflating the valuations in the stock market and before merger and acquisition deals.
In a draft paper last year, Sebi had proposed a 15-minute time limit for announcement of board decisions, but has now decided to keep it at 30 minutes. There is no such specific limit in the existing regulations.
Sinha said that the regulator is strictly monitoring the compliance of disclosure or listing guidelines, which are now being converted into regulations for better compliance.
Paving the way for creation of India’s first IFSC (International Financial Services Centre) in Gujarat’s GIFT City, Sebi also approved a relaxed set of norms for setting up of stock exchanges and other capital market infrastructure in such centres.
The game-changing regulations are aimed at creating a vibrant IFSC within India on the lines of Dubai and Singapore and help check the flight of trading in rupee and Indian securities to such offshore financial hubs.
The move would allow companies incorporated outside India to raise money in foreign currencies by issuance and listing of their equity shares on the stock exchanges within the IFSC, where individual and institutional investors from India and abroad, including NRIs, would be allowed to trade.
The IFSC regulatory regime would allow the Indian and foreign stock exchanges to set up separate bourses within the IFSC as subsidiaries, while market entities from India and abroad would be allowed to operate there by providing issuance and trading in depository receipts and debt securities of domestic as well as overseas companies.
The capital and other requirements have been relaxed for some time for the exchanges, clearing corporations and depositories to set shop in the IFSC.
Jaitley was accompanied by Minister of State for Finance Jayant Sinha during his interaction with Sebi’s board and other senior officials of the markets regulator.
Besides Chairman Sinha, Sebi’s 8-member Board includes three Whole Time Members (Prashant Saran, Rajeev Agarwal and S Raman), an independent director and nominees of Finance Ministry, Corporate Affairs Ministry and RBI.
Mutual funds and Alternative Investment Funds set up in the IFSC can also invest in the securities listed there.
To help banks deal with the problem of non-performing assets, Sebi relaxed norms for them to convert their debt into equity in such defaulting companies — a move that may lead to a sharp surge in restructuring of bank loans.
The total non-performing assets of public sector banks alone stand at nearly Rs 3 lakh crore, while top 30 defaulters are sitting on bad loans worth Rs 95,122 crore as on December 2014. In the past, banks have converted bad debt into equity in a few cases like Kingfisher but the conversion has been mostly difficult including due to regulatory and legal issues.
For municipal bonds, Sebi approved a new set of norms for issuance and listing of such securities on stock exchanges.
These bonds can be issued by the municipal authorities to the public and institutional investors, including sovereign wealth funds and pension funds from abroad, and help raise funds for urban development and smart cities project of the government, Sinha said.
The guidelines for issuance and listing of these securities, which are very popular in the US and other Western markets and are commonly known as Muni Bonds, were approved by Sebi’s board today and the final norms would be notified in the next 6-8 weeks.
The new norms would come with adequate safeguards and would provide for disclosure requirements to be made by the prospective issuers.
In the US, muni bonds have attracted investments totalling over USD 500 billion and are among preferred avenues for household savings.
While such bonds have been issued by various municipal authorities in the country, the total funds raised through them stand at only about Rs 1,353 crore.
The Bangalore Municipal Corporation was the first municipal corporation to issue a municipal bond of Rs 125 crore with a state guarantee in 1997.
However, the access to capital market commenced in January 1998, when the Ahmedabad Municipal Corporation (AMC) issued the first municipal bonds in the country without state government guarantee for financing infrastructure projects in the city. AMC raised Rs 100 crore through its public issue.
Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal authorities have issued such bonds. However, there were provisions as yet for listing and subsequent trading of muni bonds on stock exchanges in India.
Making it easier for domestic funds to manage offshore pooled assets, Sebi today relaxed its norms by dropping the ’20-25 rule’, which required a minimum of 20 investors and a cap of 25 per cent on investment by an individual, for funds from low-risk foreign investors.
The BSE Brokers Forum said that Sebi’s initiative to use technology for easing the investment process and facilitate the investor education process using social media was a welcome move.
Terming the usage of technology for investments as a step in the right direction, BSE Brokers Forum’s Vice Chairman Alok Churiwala said,
“These initiatives will go a long way in increasing the bandwidth of capital market in sync with the government of India’s plan of Digital India to build a robust, safe and vibrant investment culture across the country.”
On the impending FMC merger with Sebi, he said it will aid in swift recovery of the investors wealth engrossed in the NSEL scam in the most amicable way without any element of vengeance, keeping the larger interest of the investment cult in the economy.