The Sebi framework says large corporates have to raise 25% of their incremental borrowings for a year through corporate bonds.
About Rs 40,000-50,000 crore of additional corporate bond issuances are likely over the next five years following the Sebi’s move to shift a quarter of the incremental annual and long-term borrowings by large companies away from banks, said experts at Crisil.
The Sebi framework says large corporates — defined as having an outstanding borrowing of Rs 100 crore or more, a credit rating of ‘AA’ or higher, having its securities listed on a stock exchange, and intending to mobilise long-term funds — have to raise 25% of their incremental borrowings for a year through corporate bonds.
Crisil’s analysis shows 444 companies with aggregate rated long-term borrowings of Rs 45 lakh crore as of FY18 come in this category. They accounted for 35% of the total credit outstanding of `130 lakh crore as of the previous fiscal.
Crisil Ratings president Gurpreet Chhatwal said, “Sebi’s framework is a step in the right direction to deepen the corporate bond market and usher in a market-oriented, risk-based pricing culture. Another `2,00,000 crore of issuances would have been possible if the framework had included ‘A’ category papers and unlisted corporates.”
The inclusion of ‘A’ category and unlisted corporates would have made 1,400 companies with a total debt of `15 lakh crore eligible. This would have not only materially increased the supply, but also improved the risk appetite and diversity of sectors in the domestic corporate bond market. Currently, there is a high concentration of ‘AA’ category papers and 70% of the issuances are by firms from the financial sector. The framework comes into effect from April 1, 2019. In the first two years of implementation — FY20 and FY21 — a ‘comply or explain’ approach will be applicable. Failure to comply beyond FY21 will invite a fine equivalent to 0.2% of the shortfall in bond issuances, the Crisil report said.