Concept of Consolidation and re-issuance in the Corporate Bond Mark

The report of Hi bond_0 gh Level Expert Committee on Corporate Bonds and Securitization (Dr.

R.H. Patil Committee) had recommended for consolidation of privately placed bonds so

as to avoid fragmentation of debt market with multiple issues and for re-issuances which

help in creation of large floating stocks which is needed to enhance market liquidity.

SEBI is proposing to put in place, an enabling framework for the same.

In the G-Sec (Government Securities) market, the gradual extinguishing of illiquid,

infrequently traded and reissue of liquid bonds has helped in improving liquidity.

Gandhi Committee Report (“Report of the Working Group on Enhancing Liquidity in the

Government Securities and Interest Rate Derivatives Markets”) has recommended

active and passive consolidation modes for consolidating the G-sec market and bringing

liquidity in the market. In the G-Sec market, a policy of passive consolidation through

reissuance was started in 1999 in order to improve fungibility among the securities and

to facilitate consolidation of debt. The larger stock size of securities has greatly

improved market liquidity and helped the emergence of benchmark securities in the

market.

Given the encouraging results in liquidity in the G-Sec market, this experiment is now

recommended to be attempted in the corporate debt market. It is proposed that there

should be enabling provisions re-issuance of the existing bonds by an issuer in a given

time period (say over a quarter) and any new issue should preferably be a reissue so

that there are large stocks in any given issue, thereby helping to create secondary

market liquidity.

Section 24 of the Companies Act, 2013 empowers SEBI to administer certain provisions

of Companies Act including issue and transfer of securities by making regulations.

The public issue of debt securities is covered under SEBI (Issue and Listing of Debt

Securities) Regulations, 2008 [SEBI (ILDS) Regulations].

Therefore, amendments are proposed in SEBI (ILDS) Regulations, 2008, to include a

specific enabling provision to this effect.

In view of the same, it is proposed to amend the Chapter II of the (SEBI (ILDS)

Regulations) to incorporate a sub-regulation (A) to Regulation 18 as under:

“Consolidation and Re-issuance”

18 (A): An issuer may carry out consolidation and re-issuance of its debt securities,

subject to the fulfillment of the following conditions:

a) there is such an enabling provision in its articles under which it has been incorporated;
b) the issue is through private placement;
c) the Issuer has obtained credit rating from at least one credit rating agency

registered with the Board and is disclosed;

d) such ratings should be revalidated on a periodic basis and the change if any,

shall be disclosed;

a) appropriate disclosures are made with regards to consolidation and re-issuance,

in the Term Sheet.