Sebi issues new framework to deepen corporate bond market

The Securities and Exchange Board of India (Sebi) on Friday put in place a framework for consolidation in debt securities, as part of its efforts to deepen the corporate bond market.

Liquidity in the secondary market for corporate bonds will be increased by way of minimal number of ISINs (international securities identification numbers). ISINs code, which has 12 characters, is used for uniquely identifying securities like stocks, bonds warrants and commercial papers.

Generally, investors trade in corporate bonds that are freshly issued by a particular issuer. As a result, the outstanding securities of the same issuer become mostly illiquid.

In order to increase liquidity and ensure that an issuer’s ability to raise funds through debt securities is not curtailed, Sebi has focused on minimising the number of ISINs.

Under the new framework, an issuer will be permitted a maximum of 17 ISINs maturing per financial year.

A maximum of 12 ISINs maturing per fiscal year will be allowed only for plain vanilla debt securities. Within the limit of 12, an entity can issue both secured and unsecured non-convertible debentures, while no separate category of ISINs will be provided. Also, an entity can issue up to five ISINs every fiscal “for structured debt instruments of a particular category”.

Sebi said these restrictions would not be applicable to debt instruments that are used for raising regulatory capital and affordable housing as well as capital gains tax bonds.

To address the issue of bunching of liabilities, Sebi said the issuer can as a one-time exercise make a choice of having bullet maturity payment or make staggered payment of the maturity proceeds within a particular financial year.