By Dharamraj Dhutia and Bhakti Tambe
MUMBAI (Reuters) – Lower-rated Indian companies and first-time borrowers will gain the most from a new market regulator rule aimed at boosting liquidity in the corporate bond market.
Companies can now offer a buyback option to investors a year after issuing listed bonds, enhancing liquidity, according to the Securities and Exchange Board of India (SEBI).
This liquidity initiative, starting Nov. 1, is expected to greatly assist investors in a market often seen as illiquid, due to fewer secondary transactions.
Venkatakrishnan Srinivasan, a debt advisory partner, noted that this can help smaller firms, especially those rated BBB or lower, price their bonds more favorably, reducing the risk of mispricing.
The buyback options must be at least 10% of the bond’s issue size. While this will likely encourage lower-rated companies to tap the bond market, top-rated firms may not need the option as they easily attract investment.
Umesh Khandelwal from Tipsons Group highlighted that smaller non-banking financial firms could price their bonds better due to the increased investor confidence from this buyback feature.
Recent years have seen significant growth in corporate bond fundraising, but the market is mostly dominated by highly-rated borrowers.
(Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)
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