Companies that have already floated one debt or equity issue can now cut through several layers of formalities when issuing another tranche. The long-winded vetting process that accompanied each issue made companies reluctant to use this route and they preferred private placement, often arranged by bankers, instead.
Sebi said the simplified listing agreement for debt securities require minimal incremental disclosures because a large body of information is already in the public domain and material developments are disclosed under equity listing agreements on a continuous basis. However, where the equity of an issuer is not listed, detailed disclosures would still be required, but would be less than that required when making an offer to buy shares.
Because of the volume of paperwork hitherto, Rs 2 lakh crore in corporate debt raised in fiscal 2008-09 has been through private placement. This is, incidentally, a huge jump over the Rs 1.28 lakh crore raised in the previous year through the same route. The Patil committee set up by Sebi had recommended in its report of December 2005 that the government take steps to create a single unified exchange-traded market for corporate bonds.
The new listing agreement, though, stipulates that an issuer must maintain 100% security cover for listed secured debt securities at all times and ensure that charges on the assets are registered.
Initially, the 100% coverage will act as a deterrent for corporates. However, Sebi cannot be blamed as it is taking action in investors interest, said Hinduja Group CFO Prabal Banerji. Further, a half-yearly certificate of such security cover will have to be furnished to the debenture trustee. Earlier, it was not mandatory for companies to have 100% security. However, most companies provided this as not doing so would not attract investments, said Prime Database MD Prithvi Haldea.
The issuer is also required to separately mention the debt service coverage ratio and interest service coverage ratio after the item earnings per share while submitting half-yearly or annual results. All moves to create a stronger debt market are welcome, and the fact that the disclosure norms will also be better is also good, said a CFO with a leading Indian company. These measures are only intended to rationalise, simplify and make the listing agreement and disclosure norms more sensible. However, these measures would not result in more companies coming out with debt issues as the disclosure and listing agreements were never a major deterrent for debt issues, but a variety of other factors, said Haldea.
Mirae Asset Global head of fixed income Murthy Nagarajan echoed similar sentiments. He said, We require a very liquid market to develop corporate bonds. For that, issuers will have to take the initial step in creating market makers for their issue. This will bring in more liquidity and attract long-term players like pension funds and insurance companies. Currently, institutions that invest in corporate bonds mostly prefer short-term maturity paper rather than long-term ones.
The listing agreement also requires an issuer to promptly notify exchanges regarding expected defaults in timely payment of interest or redemption in respect of debt securities. Moreover, an issuer is required to allot securities offered to the public within 30 days of the closure of a public issue. Failure to do so would attract interest at 15% per annum.