By Dharamraj Dhutia and Bhakti Tambe
MUMBAI (Reuters) – Indian companies with lower ratings and first-time borrowers will gain the most from a new move by the market regulator to improve liquidity in the corporate bonds market, according to three merchant bankers.
Companies can now offer investors a buyback option for a portion of listed bonds after one year, providing liquidity, as announced by the Securities and Exchange Board of India (SEBI).
This liquidity option, effective Nov. 1, is expected to greatly help investors in a market often seen as illiquid due to low secondary market trading, SEBI stated.
Venkatakrishnan Srinivasan from Rockfort Fincap noted that this initiative will particularly benefit smaller issuances and BBB-rated or lower financial firms.
Companies can offer multiple put options, allowing investors to sell bonds back to the issuer, with the minimum offer being 10% of the issue size, SEBI stated.
While this is beneficial for lower-rated firms, higher-rated companies may not utilize this option, as they already attract investors easily, according to bankers.
Umesh Khandelwal from Tipsons Group mentioned that smaller non-banking financial companies might be able to price their bonds better, as this liquidity option boosts investor confidence.
Fundraising through corporate bonds has seen record growth in recent years, but the market primarily favors top-rated borrowers.
(Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)
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