Aiming to deepen the convertible securities segment for listed entities and provide additional avenues to investors, market regulator Securities and Exchange Board of India (Sebi) on Tuesday floated a discussion paper to review the framework for public issuance of such instruments.
Sebi has proposed to limit the tenure of such instruments to five years as against the current norms that offer no specific tenure of convertible securities issued to public. The regulator has sought public comments till December 23.
Sebi has proposed to “explicitly permit the existing holders of convertible securities to sell their securities to public”. Presently, existing shareholders are permitted to sell their shares to public but there is no specific mention about convertible securities.
The regulator has also mandated companies to make up-front disclosure on the methodology of price conversion of such instruments – either pre-fixed at the time of issue or linked to market price at the time of conversion.
Presently, whether an issuance can be made on a fixed price basis or through the book building route depends on issuer meeting the specified eligibility criteria.
Between 1990 and 2001, the Indian markets saw 284 issues of convertible debentures with a total fund raising of around Rs 14,000 crore, with 57 issues being larger than Rs 50 crore, the markets regulator noted. However, since 2000 the market for public issue of convertible securities has dwindled.
“Market participants have assigned variety of reasons for the same including popularity of instruments like FCCB, which were permitted since mid-90s, lower tenure for convertible instruments issued in India, higher tax incidence on convertibles as compared to equity, etc,” it added.
Sebi has suggested same tenure for unlisted company desirous of making a public issue of compulsory convertible securities as well as for Optionally Convertible Debentures (OCDs) and Optionally Convertible Preference Shares (OCPs).
In case an unlisted company is desirous of making a public issue of compulsory convertible securities, Sebi has proposed such firms will have to comply with all the requirements as prescribed under Sebi (Issue of Capital and Disclosure Requirements) Regulations in this regard.
Further, the listing of such securities is proposed to be done on the institutional trading platform.