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Monday, March 23, 2015

SEBI clears IFSC rules

Also gives nod for municipal bonds 


The board of the Securities and Exchange Board of India (Sebi) met in New Delhi yesterday, 22 March 2015. The board approved guidelines to govern international financial services centres (IFSC). It also paved the way for municipal bonds for infrastructure projects. In addition, it revised the norms for conversion of the debt of a stressed listed company into equity by banks and financial institutions and tightened disclosure norms for listed companies. 

The new norms for IFSCs aim to ease the setting up of stock exchanges and capital market infrastructure in such centres. Gujarat International Finance Tec-City (GIFT City) would be the country's first IFSC. Indian as well as foreign stock exchanges, clearing corporations and depositories will be permitted to set up subsidiaries to undertake the same business in IFSC subject to certain relaxed norms on shareholding and net worth, etc. In addition, stock exchanges will also be permitted to set up clearing corporations in IFSC. The guidelines also provide for listing and trading of equity shares issued by companies incorporated outside India, depository receipts, debt securities, currency and interest rate derivatives, index based derivatives and such other securities as may be specified by Sebi from time to time. 

To mobilise funds for infrastructure, Sebi has set guidelines for municipal bodies to raise money from the market. Detailed safeguards — for instance, the issuer should not have a negative net worth and should have an investment grade rating — have also been prescribed. 

Further, it was prescribed that an issuer making a public issue shall only issue revenue bonds. In case of private placements, an issuer may issue general obligation bonds or revenue bonds. Issuer's contribution for each project shall not be less than 20% of the project costs, which shall be contributed from their internal resources or grants. The bonds should have minimum tenure of 3 years. Municipality should not have defaulted in repayment of debt securities or loans obtained from banks/financial institutions, during the previous 365 days. Sebi said banks or financial institutions should be appointed as monetary agencies who will inter-alia prepare periodic reports of the issuer. 

Further, the board revised the norms for conversion of the debt of a stressed listed company into equity by banks and financial institutions. Such relaxation in terms of pricing will be subject to the allotment price being as per a fair price formula prescribed and not being less than the face value of shares. Other requirements would be available if conversions are undertaken as part of the proposed Strategic Debt Restructuring (SDR) scheme of the Reserve Bank of India (RBI). This is intended to revive such listed companies and provide more flexibility to the lending institutions to acquire control over the company in the process of restructuring, to the benefit of all the stakeholders, Sebi said in a statement. 

Meanwhile, a listed firm will now have to disclose its board decisions within 30 minutes, while all other material information will need to be made public within 24 hours. 

Non-compliance will invite strong penal action. Sebi said information, including details about material events, will need to be compulsorily disclosed through stock exchanges for the benefit of investors. Companies will also have to provide specific and adequate replies to queries with respect to rumours and media reports. 
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