Markets regulator Sebi today proposed to make electronic book mechanism mandatory for all private placement issues on debt basis that have a threshold of Rs 50 crore. Currently, the mechanism is mandatory for all private placements of debt securities with an issue size of Rs 500 crore or more. Besides, the regulator has suggested that the current electronic book (EBP) mechanism should be extended for private placement of structured products, market linked debentures, municipal bonds and non-convertible preference shares among others. Further, Sebi has proposed to provide an option of direct bidding for non-institutional investors. At present, only institutional investors have a choice of either participating through an arranger or entering bids on proprietary basis on their own.
Also, the regulator has suggested for a standard operational guidelines pertaining to KYC and bidding hours for electronic book providers like stock exchanges. The new proposals are aimed at achieving better and transparent price discovery through the bidding process. The Securities and Exchange Board of India (Sebi) has sough public comments on the proposals till June 21 and final regulation would be put in place after taking into views of all the stakeholders.
“The mandatory limit for EBP mechanism may be reduced from Rs 500 crore to Rs 50 crore. The mechanism may be mandated for all private placements of debt securities with an issue size of Rs 50 crore and above, inclusive of green shoe option, if any,” Sebi said. Further, the issuer shall specify the amount of green shoe option upfront, it added. The regulator has noted that many issuers, with issue size of less than Rs 500 crore, have also voluntarily opted for the mechanism while raising money through private placement of debt securities.
Till March 2017, out of total private placement of debt securities of over Rs 5 lakh crore, the total amount of private placement which took place through EBPs are worth Rs 2.94 lakh crore from 696 issuances. Sebi has proposed that a qualified institutional buyer (QIB) whose bid amount is less than Rs 10 crore should continue to have an option of either entering bids on proprietary basis or participating through an arranger, while this amount should be Rs 25 crore for non institutional investors.
A QIB and non-institutional investor, whose bid amount is Rs 10 crore and above; and Rs 25 crore and more respectively, can participate directly on the bidding platform. “For the fixed coupon rate issues with a single investor wherein EBP mechanism is optional, the option of not following the EBP mechanism would be available subject to a condition that the securities allotted to that single investor would be subject to a lock in of 60 days period from the date of allotment,” as per the proposal.
All the issuers should mandatorily follow open bidding mechanism, wherein EBP should ensure that all the bids should be disclosed on the platform on a real time basis. In cases where the issue is oversubscribed, it may be made mandatory to do allotment on yield priority basis. An issuer has an option at present to either go for open or closed bidding. With regard to the role of Electronic Book Providers (EBP), Sebi has proposed that any investors who is participating directly on the platform through proprietary bids, the EBP would ensure KYC of such investors. The bidding would be open during 9 AM to 5 PM from Monday to Friday.