By Dharamraj Dhutia and Bhakti Tambe
MUMBAI (Reuters) – Lower-rated Indian companies and first-time borrowers will gain the most from the recent decision by the market regulator to boost liquidity in the corporate bond market, according to three merchant bankers.
Companies issuing listed bonds can now offer investors a buyback option after one year, enhancing liquidity, as announced by the Securities and Exchange Board of India (SEBI).
This liquidity measure, effective November 1, is expected to be very helpful for investors in a market often seen as illiquid due to low trading volumes, SEBI noted.
Venkatakrishnan Srinivasan, from debt advisory firm Rockfort Fincap, stated that this facility will be beneficial for smaller issuers, especially those rated BBB or lower, reducing risks of mispricing.
SEBI explained that companies can provide multiple put options, allowing investors to sell bonds back to them, with the buyback amount being at least 10% of the total issue size.
While this initiative will likely encourage lower-rated firms to tap the bond market, top-rated companies may not utilize it as they already attract investors easily, according to merchant bankers.
Umesh Khandelwal from Tipsons Group highlighted that smaller non-banking financial companies could price their bonds more competitively, knowing that the liquidity option will bolster investor confidence.
Fundraising through corporate bonds has surged in recent years but remains heavily dominated by top-rated issuers.
(Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)
