NCRPS are hybrid instruments that carry a fixed dividend rate, are redeemable, and the holder is entitled to voting rights in case the dividend is not paid for two years.
Capital markets regulator Sebi has put out a timely consultation paper that seeks to rationalise the norms for issuing and listing debt securities and bringing them on par with those for ‘quasi-debt’, or hybrid equity and debt, instruments. The objective of the move is to revamp and streamline norms for corporate debt securities, improve ease of doing business and generally boost investor comfort. What is proposed is merger of (Issue and Listing of Debt Securities) (ILDS) Regulations, 2008, with Sebi (Issue and Listing of Non-Convertible Redeemable Preference Shares) (NCRPS) Regulations, 2013, to ‘enhance readability’ in a single circular.
NCRPS are hybrid instruments that carry a fixed dividend rate, are redeemable, and the holder is entitled to voting rights in case the dividend is not paid for two years. A series of changes are, rightly, sought. At present, the norms stipulate a minimum credit rating of AA– for issuance of NCRPS but not for other debt securities, hence the proposal to drop it. We surely need institutional credit enhancement of infrastructure bonds, which rarely get a rating above BB–. At present, the minimum issue size for a public issue of debt securities is ₹100 crore. But there’s no minimum public issue norm for NCRPS, securitised debt instruments or municipal bonds. And, to streamline regulations, the issue size norm for debt securities is to be removed.
The minimum tenure of three years for public issuance of NCRPS is also to be removed, as for other debt. Further, call and put options, available in case of public issues of debt securities, are to be extended for private placements, and also for NCRPS, both for public issues and private placements. An active corporate bond market brooks no delay.