Sebi allows issue of junk bonds

Move to deepen corporate bonds market

MUMBAI: The Securities and Exchange Board of India (Sebi) on Monday allowed companies to raise funds by issuing junk bonds or those below investment grade through public or rights issue.   

Sebi said this has been done to suit the risk-return appetite of investors.   Till now, only investment-grade bonds could be issued by companies through a public or rights issue.   

Sebi chairman M Damodaran has stressed the need for cost-effective norms at meeting of the Federation of Indian Chambers of Commerce and Industry (Ficci) six months back. The regulator has now reduced the expenses incurred on rating bonds instruments by nearly half.

Sebi said that credit rating from one agency will be sufficient for issuing bonds.  Earlier, ratings from two agencies were required. Structural restriction on debt instruments like maturity and put-call option on conversion have been removed to suit the firm’s requirement.

These changes, Sebi said, have been made to facilitate the development of a vibrant primary market for corporate bonds.