By Dharamraj Dhutia and Bhakti Tambe
MUMBAI (Reuters) – Lower-rated Indian companies and first-time borrowers will benefit significantly from the market regulator’s recent decision to enhance liquidity in the corporate bonds 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 after one year, improving liquidity for buyers.
This liquidity measure, effective from Nov. 1, will be extremely helpful for investors in a market that currently has low secondary transaction levels, as noted by SEBI.
Venkatakrishnan Srinivasan, a debt advisory firm founder, highlighted that this facility could aid smaller issuances, particularly for companies rated BBB or lower, without posing mispricing risks.
Companies can offer a series of put options, allowing investors to sell bonds back to the issuer, provided the offer is at least 10% of the issue size, SEBI stated.
Lower-rated firms are likely to adopt this option, while higher-rated companies may not need it as they can attract investors easily, according to merchant bankers.
Umesh Khandelwal from Tipsons Group mentioned that smaller non-banking financial companies could secure better bond pricing thanks to the confidence instilled by the liquidity window.
While fundraising through corporate bonds has surged in recent years, the market remains heavily biased towards top-rated borrowers.
(Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)
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