Sebi plans expanding definition of QIB for debt securities

Securities and Exchange Board of India (Sebi) Tuesday said it is proposing to expand the definition of qualified institutional buyer (QIB) in order to increase the potential investor base for issuers of debt securities and for further developing the debt markets and has sought public opinion on the said proposals till May 29.

The capital market regulator has proposed to include certain categories of investors in the QIB segment such as Sebi-regulated entities as well as multistate cooperatives with net worth of more than ₹500 crore.

Among others include, NBFCs, housing finance companies, pension funds, small finance banks, reinsurance companies, refinancing agencies such as MUDRA, universities and urban local bodies should be included in the QIB category.

The proposed move would increase the potential investor base for issuers of debt securities and help in further developing the debt markets, the consultation paper said

“It is noteworthy that many investors, with large corpus, financial sophistication and ability to evaluate investment opportunities have emerged. There are also existing entities which could be considered being recognized as QIBs for the same reason. Such investors can serve to provide required funds to issuers through subscription to debt securities or non-convertible securities, and enhancing the depth in the bond market”, the market regulator said.

“There is also a need to consider parity for certain class or category of Indian investors with Foreign Portfolio Investors, who are included in the present definition of QIB’, the market regulator added.

Sebi said that expanding the definition for investing into debt securities will serve to broaden the types, class and categories of investors, enhance access to investment opportunities within the primary issuance at electronic debt bidding platform and help in levelling the playing field within the bond market.

Conditions for inclusion

Sebi said that such an entity will be required to provide a self-certification that it has the necessary expertise and skills to evaluate investments into debt securities, undertake risk management and to carry out due diligence in such form as shall be specified and furnish the same to the exchange prior to commencing investments as a QIB.

Such an entity may either have a designated functionary or committee comprising individuals with necessary expertise and skills or may engage an independent registered investment advisor, portfolio manager or merchant banker on an on-going basis for evaluation, advising on risk management and/or for due diligence, Sebi said.

Sebi may also specify a minimum amount of investible surplus and furnish the same to the Stock Exchange prior to commencing investments as a QIB. The entity should however take full responsibility for any investments in debt securities made by it from time to time, the consultation paper added.