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MUMBAI: The Securities and Exchange Board of India (Sebi) will be coming out with a discussion paper on making it mandatory for large corporates to meet a fourth of their financing needs through the bond market, chairman Ajay Tyagi said on Wednesday.

Finance Minister Arun Jaitley had announced this proposal in his budget speech for FY19.

“Given the relatively nascent stage of development of the bond market, such framework has to be relatively having a soft touch approach, it would be finalised in consultation with stakeholders,” Tyagi said while inaugurating an Assocham National Conference on Corporate Bond Market.

He said that while private placement of corporate bonds have shown significant uptake especially since FY16-17, there are genuine concerns about liquidity in the secondary market. Tyagi said this would be done in consultation with the government and RBI.

He said secondary market products such as interest rate futures, credit default, swaps, repo and others have to be made more attractive to the participants for development of secondary market in corporate bonds. “Efforts made in the development of private placement of bonds have to be necessarily complemented with increase in liquidity in the secondary market.” Besides, stress in the banking sector has helped many corporates to raise funds from the bond market and this is one of the reasons for increase in raising bonds from electronic bidding platform in recent years. “Clearly, there is an opportunity to deepen the bond market amid the present NPA crisis. The large exposure of RBI is a step in the right direction, though effectiveness of the same is yettobe measured,” Tyagi said.

“As these institutions are longterm investors and they generally hold the investments till maturity, they can act as an ideal counterpart on the demand side to the infrastructure companies needing to rely on funding through longer dated instruments,” Tyagi said. He said loan bond arbitrage has to be removed by measures such as allowing banks to classify and re-classify bond and loan assets into held to maturity or available for sale buckets, based on their declared intention rather than automatically based on legal documentation.

Tyagi also said Sebi hasn’t received any open offer proposal from Life Insurance Corporation of India (LIC) on its proposed stake acquisition in IDBI Bank. He said the regulator will consider LIC’s open offer proposal for IDBI Bank’s minority shareholders as and when it reaches its desk.

LIC, which holds 10.82 per cent in IDBI Bank, has announced its intention of increasing its stake to 51 per cent in the bank, a move which will trigger Sebi’s takeover rules. According to takeover norms, an acquirer will have to make an open offer to shareholders of the target company on acquiring 25 per cent or more. The open offer issue came to the spotlight as, according to insurance laws, an insurer cannot own more than 15 per cent in a listed financial firm.

On the MCX- NSE merger talks, he said: “More players (in exchanges) are required but if economics dictate there should be consolidation, so be it, but we do not have any definitive proposal, let there be some proposal or reference, we have no such reference.”

ET had reported in its July 11 edition, of a possible merger between National Stock Exchange and Multi-Commodity Exchange of India which could create a bigger bourse with 60 per cent market share in the country.



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