By Dharamraj Dhutia and Bhakti Tambe
MUMBAI (Reuters) – Lower-rated Indian companies and first-time borrowers will benefit the most from the market regulator’s recent move that will provide liquidity into the corporate bonds market, three merchant bankers said.
Companies issuing listed bonds can give investors a buyback option for a certain amount a year after the issue, which would provide buyers liquidity, the Securities and Exchange Board of India said on Wednesday.
This liquidity window, effective Nov. 1, will be of “immense utility” to investors, SEBI said, in a market that is perceived as illiquid due to low levels of secondary market transactions.
“The liquidity window facility can be a valuable tool for smaller issuances, particularly for BBB and below rated financial companies and we should not see any mispricing risks,” said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.
The companies can provide a series of put options, which gives investors the right to sell bonds back to the issuer, but the offer should not be less than 10% of the issue size, SEBI said.
While this move will encourage lower-rated firms to use the bond market route, highly-rated companies are unlikely to take up the option as they already attract investors without much difficulty, merchant bankers said.
“The issuers, especially smaller non-banking financial companies, could price their bond better as the liquidity window would provide confidence to investors about bonds being bought back,” said Umesh Khandelwal, chief business officer at Tipsons Group.
Fundraising via corporate bonds has picked up and scaled to record highs in the past few years but in terms of issuers, the market is highly skewed towards top-rated borrowers.
(Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)
