By Dharamraj Dhutia and Bhakti Tambe
MUMBAI (Reuters) – Lower-rated Indian companies and first-time borrowers will benefit from a new regulation aimed at improving liquidity in the corporate bond market, according to three merchant bankers.
The Securities and Exchange Board of India (SEBI) announced that companies issuing listed bonds can offer investors a buyback option a year after the issue, increasing liquidity for buyers.
This new measure, effective from November 1, is expected to be very helpful for investors in a market often viewed as illiquid due to low secondary market transactions.
Venkatakrishnan Srinivasan of Rockfort Fincap noted that the liquidity window would particularly benefit smaller companies with BBB and lower ratings, helping them avoid pricing issues.
Companies can offer a series of “put options,” allowing investors to sell bonds back to them, with the buyback amount being at least 10% of the initial issue size, per SEBI.
While this initiative may encourage lower-rated firms to enter the bond market, highly-rated companies are less likely to use this option, as they already attract sufficient investor interest.
Umesh Khandelwal from Tipsons Group added that this liquidity support could help smaller non-banking financial companies better price their bonds, as it boosts investor confidence.
Corporate bond fundraising has surged to record levels recently, but the market remains dominated by top-rated issuers.
(Reported by Dharamraj Dhutia; Edited by Savio D’Souza)
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