SEBI allows corporates to issue bonds below investment grade

Mumbai: The Securities and Exchange Board of India (SEBI) has allowed corporates to issue debt instruments that are below investment grade to collect funds through public and rights issues.

The market regulator has given debt issuers the freedom to tap the market with one credit rating, instead of the existing requirement of mandatory rating by two different credit rating agencies.

The liberalised rules, which have immediate effect, are aimed at facilitating the development of a vibrant primary market for corporate bonds in India, SEBI said.

SEBI also removed the structural restrictions on instruments such as those on maturity, put/call option on conversion, etc to afford issuers with "desired flexibility in structuring of instruments to suit their requirements."

The relaxations are made by amending the SEBI (Disclosure and Investor Protection) Guidelines, 2000.

"With a view to reduce the cost of issuance of debt instruments, it has now been decided that credit rating by one credit rating agency would be sufficient," SEBI said in a note to merchant bankers and stock exchanges.

SEBI had made it mandatory for issures of debt instruments to obtain rating by two credit rating agencies following the C R Bhansali scam of the mid-1990s.

Debt instruments that are below investment grade generally offer higher interest rates and is preferred by investors, who have the risk appetite.

"In a disclosure-based regime, it should be left to the investor to decide whether or not to invest in a non-investment grade debt instrument. Given this, and in order to develop market for debt instruments, it has been decided to allow issuance of bonds which are below investment grade to the public to suit the risk/return appetite of investors," said a Sebi circular.