Regulatory Aspects Of Debt Market In India

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Regulatory Aspects Of Debt Market In India

  1. 1. A Debt Market Presentation Regulatory Aspects Of Debt Market A Presentation by: Shashank Udupa Manohar Rao Ashutosh Parita Thakkar Amar Vora Yash Thakkar Purvi Visaria
  2. 2. A Debt Market Presentation Topics To Covered  Introduction to the Regulators of Debt Market • Ashutosh Athavale  Government Securities Act, 2006 • Parita Thakkar  Government Securities Regulation Act, 2007 • Purvi Visaria  SEBI (Disclosure and Investor Protection) Guidelines, 2000 • Yash Thakkar, Amar Vora  SEBI (Issue and Listing of Debt Securities) Regulations, 2008 • Manohar Rao  Recent Data & Analysis, Conclusion • Shashank Udupa
  3. 3. A Debt Market Presentation Who Are The Regulators Of Debt Market In India??? •Reserve Bank Of India(RBI) •Securities Exchange Board Of India (SEBI)
  4. 4. A Debt Market Presentation Involvement Of Regulators In Debt Market Of India Reserve Bank Of India (RBI)  Issuer Of Debt Instruments  Determines the guidelines as to how the commercial banks can raise money from the general public.
  5. 5. A Debt Market Presentation Involvement Of Regulators In Debt Market Of India Securities Exchange Board Of India (SEBI)  Secondary Role In Regulatory Aspect  Determines the guidelines for raising money through public issues  SEBI is also the main regulator for Mutual Funds
  6. 6. A Debt Market Presentation Government Securities Act, 2006 A security created and issued by the Government for the purpose of raising a public loan..
  7. 7. A Debt Market Presentation Forms of Government Security Promissory Note Bond Bearer Bond Stock Certificate
  8. 8. A Debt Market Presentation Stock  A stock means a Government security;  Registered in the books of the RBI for which a stock certificate is issued; or held at the credit of the holder in the SGL account including the CSGL account maintained in the Books of the RBI  The transfer of the Government securities shall be made in such form and in such manner as may be prescribed.
  9. 9. A Debt Market Presentation FAQ  When did the G S Act and the G S Regulations come into force and to which Government securities do they apply?  The G S Act and the G S Regulations came into force with effect from December 1, 2007. The G S Act applies to Government securities created and issued by the Central Government or a State Government, whether before or after the commencement of this Act. The G S Act will apply to all Government securities created and issued even prior to December 1, 2007.  What does one mean by Government security in the form of Stock?  Stock means a Government security registered in the books of RBI for which a Stock Certificate (SC) is issued or which are held at the credit of the holder in the Subsidiary General Ledger (SGL) account maintained in the books of RBI and transferable by registration in the books of RBI.
  10. 10. A Debt Market Presentation Government Securities Regulations, 2007 Made by the Reserve Bank of India to carry out the purpose of the Government Securities Act..
  11. 11. A Debt Market Presentation Regulations To The Different Forms  Government security held in the form of Government Promissory Notes is transferable by endorsement and delivery.  Government securities held in the form of A Stock Certificate, SGL account including the CSGL account & Bond Ledger Account are transferable, before maturity, by execution of forms - III, IV & V respectively appended to the Government Securities Regulations. Promissory notes and stock
  12. 12. A Debt Market Presentation Bond & SGL CSGL  A bearer bond is transferable by delivery and the person in possession of the bond shall be deemed to be the owner of the bond.  Government securities held in SGL account including the CSGL account or bond ledger account shall also be transferable by execution of a deed in an electronic form under digital signature. Bond and SGL CSGL
  13. 13. A Debt Market Presentation FAQ  Are Government securities eligible for creation of pledge, hypothecation or lien?  Yes. Pledge, hypothecation or lien may be created in respect of Government securities held in the form of SC, BLA, SGL/CSGL and the holder of Government securities in such forms may avail of loan facility by keeping such securities as collateral towards loan. However, Government securities issued in the form of GPN and bearer bonds are not eligible for creation of pledge, hypothecation or lien.  Whether Government securities are eligible for conversion, consolidation, sub- division, renewal?  Yes. Government securities are eligible for conversion from one form of holding to another as well as consolidation, sub-division and renewal as per the terms and conditions prescribed in the G S Regulations.
  14. 14. A Debt Market Presentation SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000 SEBI has issued Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines in 2000 ..
  15. 15. A Debt Market Presentation Guidelines For Issue of Debt Instruments  The issuer making a public issue or rights issue of debt securities shall appoint one or more debenture trustees in accordance with the provisions of Section 117B of the Companies Act, 1956.  The issuer making a public issue or rights issue of debt securities shall appoint one or more Merchant Bankers.  The issuer shall enter into an arrangement with a depository registered with the SEBI for dematerialization of the debt securities that are proposed to be issued to the public.  The issuer shall give an option to the subscribers to receive the debt securities either in the physical form or in dematerialized form
  16. 16. A Debt Market Presentation Advertisements of Public Issues  The issuer company shall make an advertisement in an English national Daily with wide circulation, one Hindi National newspaper and a regional language newspaper with wide circulation at the place where the registered office of the issuer is situated  At the time of filing of the offer document with the Registrar of Companies.  Issue Opening Date, Issue Closing Date.  And contain the minimum disclosures as per Schedule IV.
  17. 17. A Debt Market Presentation Requirement of Credit Rating  No public issue or Rights issue shall be made unless credit rating from a credit rating agency has been obtained.  For a public or rights issue greater than or equal to Rs. 100 crores two ratings from two different credit rating agencies shall be obtained.  Where credit rating has been obtained from more than one credit rating agencies, all credit ratings, shall be disclosed.  All credit ratings obtained during the three years for any listed security of the issuer company shall be disclosed in the offer document.
  18. 18. A Debt Market Presentation Requirement Of Debenture Trustee  In case of issue of debentures having maturity more than is months, the issuer shall appoint a Debenture Trustee.  The name of the debenture trustee must be stated in the offer document.  A trust deed must be executed by the issuer company in favor of the trustee within six months of the closure of the issue.  Trustees of the debenture issue shall be vested with the power for protecting the interest of the debenture holders.
  19. 19. A Debt Market Presentation Debenture Redemption Reserve (DRR)  A company has to create Debenture Redemption Reserve (DRR) in case of issue of debentures with maturity of more than 18 months.  The DRR should be created in accordance with the following provisions: • Company shall create DRR equivalent to 50% of the amount of debenture issue before debenture redemption commences. • Withdrawal from DRR is permitted only after 10% of the debenture liability has been actually redeemed by the company. • The requirement of creation of DRR shall not be applicable in case of issue of debt instruments by infrastructure companies.
  20. 20. A Debt Market Presentation Distribution Of Dividends  In the case of existing issuers, prior permission of the lead institution for declaring dividend exceeding 20% or as per the loan covenants is necessary if the issuer does not comply with institutional condition.  In case of New companies, distribution of dividend shall require approval of the trustees to the issue and lead institution, if any  Dividends may be distributed out of profit of particular years only  If residual profits after transfer to debenture redemption reserve are inadequate to distribute reasonable dividends, issuer may distribute dividend out of general reserve.
  21. 21. A Debt Market Presentation Other Provisions  No company shall issue Fully Convertible Debentures having conversion period of more than 36 months, unless conversion is made optional with “Put” and “Call” option.  No issue of debentures by any issuer company shall be made for acquisition of shares or providing loan.  Premium amount and time of conversion shall be determined by the issuer company.  The interest rate for debentures can be freely determined by the issuer company.
  22. 22. A Debt Market Presentation SEBI (ISSUE AND LISTING OF DEBT SECURITIES) REGULATIONS, 2008 Issue and Listing of Debt Securities was Implemented by SEBI & has simplified the Debt market and given it structure..
  23. 23. A Debt Market Presentation Issue Requirements for Public Issues  General Conditions.  Filing of draft offer document for Public Issues.  Electronic Issuance.  Price Discovery through Book Building.  Minimum Subscription.  Listing of Debt Securities.
  24. 24. A Debt Market Presentation Continuous Listing Conditions:  Should comply with the conditions of listing.  Rating obtained by an issuer should be periodically reviewed.  Change in rating should be promptly disseminated to investors.  Debenture trustee should disclose the information to the investors and the general public by issuing a press release.
  25. 25. A Debt Market Presentation Impact of Regulatory Changes The Change brought about by the Existence of these Regulatory Measures..
  26. 26. A Debt Market Presentation Impact On The Economy  Government borrowing at market rates.  Greater market absorption of Government securities – lower devolvement on the Reserve Bank of India.  Increase in the amounts being raised in the market at market determined rates.  Increase in trading volumes.
  27. 27. A Debt Market Presentation Future of India’s Debt Market Regulations have had a positive impact on the market which has moved from a credit market to a securities market..
  28. 28. A Debt Market Presentation The Future  Greater transparency – RBI has started publishing SGL data.  Availability of information and increased interest in the debt market – research reports, seminars, discussions, newspaper articles, etc.  Introduction of auctions which have contributed to development of bidding skills among the investors. Banks are paying special attention to this sector as profit centers.  Increased focus on treasury management and interest rate risk management.  Possibility of a market responsive yield curve emerging.  Larger amounts being raised by the corporate sector.

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