Srei, the city-based non-bank finance company, has urged regulators to consider on-tap buyback of non-convertible debentures from retail investors.
In a letter to RBI governor Shaktikanta Das and Sebi chairman Ajay Tyagi on Tuesday, Hemant Kanoria, chairman of Srei Infrastructure Finance, suggested that NCD issuing companies should be allowed to buy back securities issued by them directly to retail investors.
While Sebi’s buyback rules allow companies to buy back securities issued in the form of shares, bonds and debentures, there is no scope of segregating a section of investors from whom the company can buyback. So any buyback typically includes all investor categories. If considered, it would offer retail investors another exit route in addition to the exchange-trading platform.
“The development of the debt market is still a work in progress and we believe a lot more can be done to encourage participation from retail investors in the bond market. To this end, we would like to reiterate our suggestion of allowing issuer companies to buy back securities from retail investors,” Kanoria said in the letter.
He added that the company would be happy to have “on tap buyback” of its NCDs. “It would prevent interested parties from gaming the system at the expense of investors and offer investors a simple exit route which would make NCDs more popular,” Kanoria said.
According to market observers, the pricing of an NCD buyback could be higher, lower, or similar to the traded prices on the exchanges. Typically, a benchmark is being considered while pricing the buyback.
The traded prices on the bourses also could be quite erratic, mainly on account of the low volumes of trade.
Srei Infrastructure Finance and Srei Equipment Finance have together raised around Rs 4,315 crore till date since the beginning of public issues in 2012.
The letter to the regulator comes at a time there are concerns in the NBFC sector over liquidity stress affecting the borrowing capacity of several finance companies.
Insitituional investors and HNIs have a broader understanding of the finance business.