The Securities and Exchange Board of India has proposed granting an exemption from mandatory appointment of a merchant banker for small-value debt issued by listed companies through a private placement in order to reduce compliance costs and boost market development.
The current rule requires issuers to appoint at least one merchant banker for private placements of debt securities or non-convertible redeemable preference shares with a face value of ₹10,000.
The mandatory appointment of merchant bankers increases costs, causes delays and hurts price-sensitive debt issuances where market yields can move quickly. Further, the limited number of merchant bankers active in the debt segment is also a hindrance, SEBI said inviting public comments by September 17.
Strict criteria
The exemption is restricted to issuers meeting four conditions, such as being registered with or regulated by a financial sector regulator in India, including SEBI, the Reserve Bank of India, the Insurance Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority.
The issuer must also have been listed on a recognised stock exchange for at least one year and have no pending fines or penalties from SEBI or stock exchanges for applicable listing-related non-compliance.
Additionally, the issuer must not have defaulted in the last three financial years and the current financial year regarding the repayment of deposits or interest payable on them, redemption of non-convertible preference shares or debt securities and interest payable on them, declaration and payment of dividend to shareholders, and repayment of any term loan or interest payable on it. The issuer must also submit an auditor’s certificate confirming this to the stock exchange.