Sebi mulls one-time listing window for unlisted NCDs

MUMBAI: The Securities and Exchange Board of India (Sebi) is considering an unprecedented one-time listing window for existing unlisted non-convertible debentures to ease stress at various mutual funds. Two people familiar with the matter said that mutual funds holding illiquid, lower-rated securities would be able to use this opportunity to offload them to buyers. The rise in risk aversion after the Covid-19 lockdown had made it very difficult for funds to sell these securities without incurring huge losses. The capital market regulator told the mutual fund industry last week in a letter to ask issuing companies whether they are interested in listing these NCDs. There are about 128 such issuing companies, the Sebi letter says, and they include marquee names like Tata Sons, ONGC Petro Additions, Adani Rail Infra, KKR India Financial Services and Hero Solar Energy. According to industry estimates, debt mutual fund schemes held unlisted NCDs worth Rs 41,500 crore on March 31.Email queries to Sebi and Association of Mutual Funds in India went unanswered till the time of going to print.76127027If majority of the companies agree to list, Sebi could permit a two-month window for trades in these securities on the stock exchanges, said the people in the know cited above.This will be the first time the regulator is permitting existing NCDs to be listed. Rules allow only fresh NCD issuances to be listed on stock exchanges. Many companies do not list their NCDs to avoid disclosures linked to listing requirements. They may agree to list if the regulator allows a one-time relaxation in rules, said industry officials.Meeting NCD Exposure CapA short-term listing window could help mutual funds meet the regulator’s October 2019 circular that mandated the industry to cap exposure to NCDs at 10% of the scheme’s corpus. This step had dried up demand for NCDs among mutual funds.Franklin Templeton’s global chief Jennifer Johnson had partly blamed the rule for the winding up of its six debt schemes, a comment which invited Sebi’s wrath forcing Franklin to later apologise. Sebi on April 28 extended the deadline for complying with these exposure caps to December 31 giving mutual funds a breathing space. The Franklin crisis broke out on April 24 after the global asset management firm decided to wind up six debt schemes due to rising redemptions and inability to find a market for its lower-rated paper. Franklin also halted payments to investors from these funds.Industry officials said majority of these unlisted NCDs are held by Franklin and other top seven mutual funds. “There is a better chance of mutual funds being able to sell illiquid debt if foreign funds and HNIs see value in some of the long-term papers,” said the chief executive of a mid-sized mutual fund.Sebi and RBI have been on high alert after the Franklin episode came to the fore. To contain its effect on the industry—mainly credit risk schemes—the RBI late in April allowed mutual funds to borrow from banks by keeping securities that are of investment grade as collateral. Though many in the industry have not utilised the central bank’s liquidity window in a big way, industry officials claim the move has infused confidence.The mutual fund industry’s troubles, however, may be far from over. Fund managers agree that the stressed companies, which have issued bonds to debt schemes, may struggle to repay money on time due to the recent losses on account of the lockdown.

from Economic Times https://ift.tt/2XiitwI