The Securities and Exchange Board of India (Sebi) has proposed to exempt small-value debt issues from the requirement to appoint merchant bankers, aiming to reduce compliance costs and encourage market development. This proposal, open for public comments until September 17, seeks to facilitate fundraising through private placements of debt securities or non-convertible redeemable preference shares with a face value of Rs 10,000.
Currently, issuers are mandated to appoint at least one merchant banker for such private placements, a rule that increases the cost of capital and discourages frequent small-value issuances. Sebi's consultation paper highlights that this requirement erodes the economic viability of planned issuances.
The proposed exemption is subject to several conditions. Issuers must be registered or regulated by a financial sector regulator and listed on a recognized stock exchange for at least one year. Additionally, they must have no pending fines or penalties from regulators or stock exchanges.
Further conditions include a clean record of no defaults in the last three financial years and the current year concerning the repayment of deposits, interest, redemption of non-convertible preference shares or debt securities, and term loan repayments. An auditor's certificate confirming compliance must be submitted to the stock exchange.
Sebi has invited public feedback on these proposals, which aim to streamline the process and lower barriers for smaller issuers seeking to raise capital.
Background
As the financial market evolves, this move by Sebi could significantly impact small and medium enterprises, potentially increasing their access to capital markets and enhancing liquidity.
Looking ahead, stakeholders will be keenly observing the feedback and final decision on this proposal, which could reshape the landscape for small-value debt issuances in India.
