Sebi makes it easier to raise funds via IPOs & debt issues

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IPO grading done away with, shelf-prospectus allowed in debt

Sebi makes it easier to raise funds via IPOs & debt issues
Making it easier for companies to raise funds through equity or debt offers, the Securities and Exchange Board of India (Sebi) has done away with the mandatory grading for IPOs and allowed firms to file shelf-prospectus with one year validity for multiple debt issuances.

The Sebi board, which met on Tuesday, approved the proposal to make the IPO grading mechanism voluntary against the existing system of mandatory grading. IPO grading had been made mandatory in May 2007, which required each issue to be graded in a scale of 1 to 5 by a credit rating agency (CRA) registered with Sebi. The grade assigned on a five-point scale represented the relative assessment of the fundamentals of that issue in relation to other listed securities.

An IPO grade of 1 means poor fundamentals while a grade of 5 signals strong fundamentals. But the grading mechanism was found to be ineffective in judging issues, as many IPOs with high grades failed to perform post listing.

Justifying its decision to make IPO grading voluntary, Sebi said: “Considering the requests received from market participants, viz. investor associations and Association of Investment Bankers of India (AIBI), the recommendation of the advisory committee of Sebi was to align it with the principles laid down by the Financial Stability Board (FSB) for reducing the reliance on credit rating agencies.”

The Sebi board also approved a communiqué from the department of economic affairs to give same tax treatment to all three categories of foreign portfolio investors (FPIs) as available to foreign institutional investors (FIIs).

The board decided to allow select entities over and above public financial institutions and scheduled ban­ks to file shelf-prospectus for public issuance of non-convertible debt securities in line with the Companies Act, 2013, which enables Sebi to specify a class of firms that can be allowed to file shelf-prospectus.

The Sebi board decided to extend the shelf-prospectus filing facility for CBDT-authorised issuers for tax-free bonds, infrastructure debt funds and also to NBFCs registered with RBI, housing finance companies registered with the National Housing Bank and entities that have listed their shares/debentures on the stock exchanges for at least three years and have net worth of Rs 500 crore, a track record of distributable profits for three years, a credit rating of not less than ‘AA-’ with no history of any default or any pending regulatory action with RBI, Sebi or NHB.

The Sebi board also approved a proposal to amend the Sebi (collective investment schemes) Regulations, 1999, providing a framework for the regulation of such deemed collective investment schemes and additional requirements for continuous compliance by a registered collective investment scheme.

The Securities Laws (amendment) Ordinance, 2013 provides for regulation of pooling of funds under any scheme or arrangement, involving a corpus of Rs 100 crore or more, to be deemed as collective inMaking it easier for companies to raise funds through equity or debt offers, the Securities and Exchange Board of India (Sebi) has done away with the mandatory grading for IPOs and allowed firms to file shelf-prospectus with one year validity for multiple debt issuances.

The Sebi board, which met on Tuesday, approved the proposal to make the IPO grading mechanism voluntary against the existing system of mandatory grading. IPO grading had been made mandatory in May 2007, which required each issue to be graded in a scale of 1 to 5 by a Sebi-registered credit rating agency (CRA). The grade assigned on a five-point scale represented the relative assessment of the fundamentals of that issue in relation to other listed securities.

An IPO grade of 1 means poor fundamentals while a grade of 5 signals strong fundamentals. But the grading mechanism was found to be ineffective in judging issues, as many IPOs with high grades failed to perform post listing.

Justifying its decision to make IPO grading voluntary, Sebi said: “Considering the requests received from market participants, viz. investor associations and Association of Investment Bankers of India (AIBI), the recommendation of the advisory committee of Sebi was to align it with the principles laid down by the Financial Stability Board (FSB) for reducing the reliance on credit rating agencies.”

The Sebi board also approved a communiqué from the department of economic affairs to give same tax treatment to all three categories of foreign portfolio investors (FPIs) as available to foreign institutional investors (FIIs).

The board also decided to allow select entities over and above public financial institutions and scheduled banks to file shelf-prospectus for public issuance of non-convertible debt securities in line with the Companies Act, 2013, which enables Sebi to specify a class of companies that can be allowed to file shelf-prospectus.

The Sebi board decided to extend the shelf-prospectus filing facility for CBDT-authorised issuers for tax-free bonds, infrastructure debt funds and also to NBFCs registered with RBI, housing finance companies registered with the National Housing Bank and entities that have listed their shares/debentures on the stock exchanges for at least three years and have net worth of Rs 500 crore, a track record of distributable profits for three years, a credit rating of not less than ‘AA-’ with no history of any default or any pending regulatory action with RBI, Sebi or NHB.

The Sebi board also approved a proposal to amend the Sebi (collective investment schemes) Regulations, 1999, providing a framework for the regulation of such deemed collective investment schemes and additional requirements for continuous compliance by a registered collective investment scheme.

The Securities Laws (amendment) Ordinance, 2013 provides for regulation of pooling of funds under any scheme or arrangement, involving a corpus of Rs 100 crore or more, to be deemed as collective investment scheme.

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