Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi on Saturday said the Insolvency and Bankruptcy Code (IBC) will help boost investor confidence and encourage fund flows into the corporate bonds market, while addressing a CII conference on insolvency and bankruptcy. “From an investors’ standpoint, an effective and robust bankruptcy regime is important for developing the corporate bonds market. Investors have been shying away from low-rated corporate bonds even if the rating is of investment grade, given the high rate of defaults,” Tyagi said. Tyagi said corporate bond issuance so far in the financial year 2017 has reached about Rs 7 lakh crore, against Rs 5 lakh crore in the previous financial year, a rise of 40%. He said the implementation of IBC will increase confidence among investors and could increase liquidity in low-rated papers. The Sebi chairman said bankruptcy reforms have had significant impact in developing corporate bonds market in various parts of the world.
“In Brazil, the corporate bond market as percentage of GDP increased from 12% to 26.3%, in Russia from 8.1% to 13.1%,” he said. Tyagi said in India, fund raising from bonds was 17.9% of the GDP in 2016 and it would be interesting to see the impact of implementation of this code. Citing various measures taken by Sebi to facilitate the implementation of the Bankruptcy code, Tyagi said the market regulator has allowed relaxation in Issue of Capital and Disclosure Requirements (ICDR) regulations and takeover regulations requirement with regard to resolution plans approved under this code.
Tyagi said Sebi has taken steps to strengthen the rating mechanism followed by credit rating agencies to enhance an early-warning system to identify potential defaulters. “As per the mechanism, rating agencies will carry out a review of rating on the occurrence of an announcement of material events such as transactions, corporate debt restructuring and a significant increase in debt levels, and then will come out with a press release about the rating action,” he said. He said Sebi has come out with a circular that tightened the disclosure norms for listed companies that end up defaulting on loan repayments.
In the circular dated August 4, Sebi had directed that from October, listed companies will need to disclose defaults on loan repayments within one working day. Listed companies would need to inform exchanges in case they have defaulted in payment of interest, installment obligations on debt securities, loans from banks and financial institutions and external commercial borrowings. Companies would need to disclose the date of default, the name of the bank/financial institution that lent the money, default amount and gross principal amount on which the default occurred.