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Business News/ News / India/  Sebi gives 3 months to unlisted bond issuers in debt funds to list
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Sebi gives 3 months to unlisted bond issuers in debt funds to list

Starting 15 June, the window would be made available to issuers who have unlisted NCDs outstanding as on March 31
  • This is another step towards ensuring that debt mutual fund schemes hold only 10% in unlisted debt
  • The listing would entail higher compliance and disclosures. Photo: ReutersPremium
    The listing would entail higher compliance and disclosures. Photo: Reuters

    MUMBAI: Securities and Exchange Board of India (Sebi) has given unlisted non-convertible debentures (NCDs), where mutual fund are investors, a one-time window of three months to get listed.

    In a letter to asset management companies late Tuesday, Sebi said, starting 15 June, the window would be made available to issuers who have unlisted NCDs outstanding as on March 31 without the requirement to comply with electronic bidding platform guidelines. Mutual funds are required to inform issuers about this window.

    Mint has reviewed a copy of the letter.

    This is another step towards ensuring that debt mutual fund schemes hold only 10% in unlisted debt. Mutual funds have time till end of December to comply with the norms. The existing unlisted remains grandfathered. The listing would entail higher compliance and disclosures.

    The schemes had to comply with the investment limits for unlisted non-convertible debentures (NCDs) at 15% and 10% of the debt portfolio by 31 March and 30 June respectively.

    "In addition, it permitted mutual funds to grandfather the existing investments in unlisted debt instruments till maturity of such instruments, so as to not disrupt the market," said Sebi.

    These dates were subsequently extended to 30 September and 31 December respectively in view of covid-19 related disruptions.

    This additional step is to provide liquidity for these unlisted papers. Exchanges are only allowing fresh NCDs to be listed and not existing unlisted ones, said CEO of asset management company.

    According to Sebi communication, if issuers of unlisted NCDs avail the opportunity of one-time listing and file their listing application but unduly delay in getting their NCDs listed, they would be required to pay additional coupon of 1% to investors.

    Association of Mutual Funds in India (AMFI) on Wednesday wrote to asset management companies (AMCs) saying they should take maximum advantage of the window and act immediately.

    “There are about 121 companies which haven't listed their debs. Franklin Templeton is the largest owner of unlisted debts amongst mutual fund houses. We will request all of investee companies to list their debts," said the CEO of a large fund house, declining to be named.

    MF industry holds about 41,500 crore of unlisted NCDs across all types of schemes, excluding liquid schemes as on 31 March. A large chunk of these unlisted debt is held by the six debt schemes which are under the winding up process.

    Many of these NCDs are issued by marquee issuers and used to be considered liquid investments. These have turned illiquid due to market volatility in the current covid-19 situation, causing challenges for mutual funds.

    “Further, some of the same issuers' listed NCDs issued after 1 October trade regularly, but the unlisted NCD of the same issuer with the same rating and potentially a shorter maturity has become completely illiquid. This has been adversely impacting the performance of various mutual fund schemes investing in debt instruments," said an AMFI member.

    There is a framework at the stock exchanges to list new issuances of NCDs, but it cannot be used for older issuances. The exchange framework is now being extended for existing NCDs.

    “While Sebi has facilitated listing of unlisted NCDs many marquee issuers such as Tata Sons are unwilling to list their bonds. Perhaps they would make up the 10% of the unlisted debt still allowed," said an official of a fund house.

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    ABOUT THE AUTHOR
    Jayshree P Upadhyay
    Jayshree heads a team of reporters focussing on legal, regulatory, investigative stories. She has worked for over a decade, reporting on financial scams, legal stories and the intersection of corporate and regulatory issues. She is based in Mumbai and has previously worked with Business Standard, Mint, The Morning Context and Bloomberg TV India.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 10 Jun 2020, 05:47 PM IST
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