Markets regulator Sebi on Thursday proposed granting an exemption from mandatory appointment of a merchant banker for small-value debt issued through a private placement basis by listed entities.
The move is aimed at reducing compliance costs and boosting market development.
Current rule adds to issuance costs
The current rule requires issuers to appoint at least one merchant banker for private placements of debt securities or non-convertible redeemable preference shares with a face value of Rs 10,000.
This increases the cost of capital for issuers, eroding the economic viability of planned issuances, thereby discouraging frequent small-value debt issuances, Sebi said in its consultation paper.
Accordingly, Sebi has proposed to exempt "small-value debt" issues from the requirement to appoint merchant bankers.
Sebi proposes exemption with conditions
"In order to facilitate fund raising by issuers of debt security/ non-convertible redeemable preference share on a private placement basis at a face value of Rs 10,000 (i.e., small-value debt), it has been decided to exempt such issues from the requirement of merchant banker appointment, subject to certain conditions," Sebi said.
This includes the issuer being registered or regulated by a financial sector regulator and listed on any recognised stock exchange(s) for at least one year.
Further, stock exchanges, when granting in-principle approval, must ensure the issuer has no pending fines or penalties levied by the regulator or the bourses.
Issuers must meet repayment criteria
The proposed framework also requires issuers to have no defaults during the last three financial years and the current financial year relating to repayment of deposits or interest, redemption of non-convertible preference shares or debt securities and interest payable on them.
The conditions also cover declaration and payment of dividends to shareholders, as well as repayment of any term loan or interest payable on it.
The issuer will have to submit an auditor’s certificate confirming compliance with these requirements to the stock exchange.
The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals until September 17.