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Corporate bonds find a friend in Sebi

Mumbai, Jan 3: Companies will soon find it easier to float bonds that will trade on the bourses.

The Securities and Exchange Board of India (Sebi) has proposed a friendlier regulatory framework for corporate bonds.

The regulator today came out with a draft Sebi (Issue and Listing of Debt Securities) Regulations, 2008, which proposes modifications aimed at reducing the time and smoothening the cumbersome process for the issue of debt securities. Companies will also be given greater flexibility in structuring the debt instruments.

Sebi has expressed concern over the limited success of primary corporate bond offerings and absence of adequate trading in these securities.

Corporate bonds are debt securities issued by publicly held corporations to raise money for expansion or other business needs.

They pay a higher rate of interest than government bonds, but the interest earned is generally taxable.

The modifications are designed to aid the creation of a vibrant corporate bond market that will create a major resource-raising mechanism to fund infrastructure projects.

The consultative paper floated today seeks to simplify the debt issuance process by reducing costs and enhancing transparency.

The regulator has proposed that issuers planning private placements that will eventually list on the bourses will not have to file an offer document but will only be required to comply with the disclosure norms specified in the listing conditions. These listing agreements will be further simplified depending on whether the equity securities of the issuer are already listed or not. While a detailed disclosure will be compulsory for the unlisted issuers, a minimal disclosure will suffice for those companies that are already listed.

At present, public financial institutions and non-banking financial companies are exempt from the rule that limits private placements to no more than 49 entities. The market watchdog has suggested that issuances to 50 or more persons or entities will require mandatory listing and specific disclosures corresponding to the listing agreement. However, an unlisted company making a private placement of debt securities will be allowed to list its securities on an exchange.

The regulator has also proposed to create an enabling mechanism for e-issuance of debt securities to the public. The merchant banker will continue to certify the due diligence process related to debt securities, while the issuer will have to provide adequate disclosures to the exchanges.

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