Companies issuing structured products or market-linked debentures should have a minimum net worth of at least R100 crore, if they want them to be listed on the stock exchanges, the Securities and Exchange Board of India (Sebi) said on Wednesday.
The capital markets regulator also stipulated that while the issuers are free to determine the face value for such securities, no invitations for subscription or allotments shall be made for an amount less than R10 lakh in any issue. Prescribing guidelines for intermediaries, Sebi has said that only intermediaries regulated by it can sell such securities.
Moreover, the intermediary would need to ensure that the investor understands the risks involved, is capable of taking the risk posed by such securities and shall satisfy itself that the securities are suitable to the risk profile of the investor.
Sebi said that, in addition to the disclosure requirements specified under Schedule I of Debt Regulations?read with Regulation 21(1) of the Sebi (Issue and Listing of Debt Securities) Regulations?the companies would also need to disclose, in all offer documents, a detailed scenario analysis or a valuation matrix showing graphically, the value of the security under different market conditions.
Risk factors need to be suitably highlighted so that it is clear to investors that the securities are created on the basis of complex mathematical models, involving multiple derivative exposures, which may or may not be hedged and the actual behaviour of the securities selected for hedging may significantly differ from the returns predicted by the mathematical models.
Any mention of indicative returns or interest rates would need to be shown only on an annualised basis.
That apart, it will be mandatory for the issuer to appoint a third-party valuation agency, which shall be a credit rating agency registered with Sebi. This valuer will be required to publish, on its website, and provide to the issuer, value of the securities, at least once a week. The issuer would also need to arrange to provide the investor the value whenever he asks for it. The intermediary would need to provide the investor with guidance on exit loads, exit options, or liquidity support, if any, being provided by the issuer or through the secondary market.
The regulator observed that a variety of hybrid securities that combine features of plain-vanilla debt securities and exchange-traded derivatives are being issued through private placements and listed on stock exchanges.
Such securities, Sebi said, differed from plain-vanilla debt securities or debt securities issued with embedded call or put options, by offering market-linked returns obtained through exposures on exchange traded derivatives.
Since such returns are linked to equity markets, these securities are also called equity-linked debentures or stock-linked debentures.
?In view of the fact that such securities are different in their nature and their risk-return relationship, it has been decided to specify additional disclosures and other requirements in offer documents for issue of structured products or market-linked debentures that seek listing on stock exchanges,? the regulator said.