To make fund raising process easier, market regulator Sebi today made the initial public offer (IPO) grading mechanism by credit rating agencies voluntary and allowed companies to file shelf prospectus with one-year validity for multiple issuance of debt securities.
The Sebi's board approved the proposal to make the IPO grading system voluntary as against the current provision of being mandatory. The move is part of the regulator's effort to boost the dormant primary market and reduce the reliance on rating agencies, who have been under scanner globally for their role in overall financial sector.
The IPO market had been dormant for almost three years. Sebi-approved IPO proposals worth Rs 72,000 crore are yet to hit the market, according to Prime Data, a market research and consulting firm. The last major IPO was from Coal India in 2010.
This move follows a requests from market participants, investor associations among others.
In another measure to prop up the capital markets, Sebi's board allowed shelf-prospectus for corporate bond issues. Domestic corporate bonds are a small portion of a market that is now dominated by government securities.
A shelf-prospectus enables companies to issue corporate bonds utilising the same documents more than once, which will help cut costs and save time.
Sebi extended the facility to file shelf prospectus for issuing non-convertible debt securities for non-banking finance companies, including infrastructure debt funds (IDFCs), besides public sector financial institutions, public sector banks and scheduled banks.
The regulator has also suggested allowing issuers authorised by central board of direct taxes (CBDT) to make public issue tax free secured bonds to file shelf prospectus.
According to Companies Act, 1956, any public financial institution, public sector bank or scheduled bank, whose main object is financing, was allowed to file a shelf prospectus.
To avoid fragmentation of the issues, which will affect the floating stock and thereby liquidity, Sebi said that only a maximum of four issuance can be made under a Shelf Prospectus.
Further, companies filing a shelf prospectus with the Registrar of Companies are not required to file prospectus afresh at every stage of offer of securities, within the period of validity of such shelf prospectus i.e. one year. They are required to file only an information memorandum, containing material updations, with respect to subsequent issues.
NBFCs and other listed issuers would be eligible for filing shelf prospectus only if meet certain criteria, including having a networth of at least Rs 500 crore.
Corporate bonds accounted for 21 per cent of the overall outstanding debt of Rs 62 trillion in the country, with the rest controlled by the government securities market, according to a study by rating agency Crisil last month.