How Sebi’s new initiative will smoothen issuance of corporate bonds
The latest introduction by SEBI of a simplified process for the primary issuance of bonds by corporates could be quite helpful. Unlike equity issuances, bond issues are more frequent and very time and cost-sensitive. Private placement is the right approach for these kinds of issuances.
The new process of SEBI which is called primary issuance on a private placement basis under the “GID/ KID” guideline for issuance of bonds by corporates on a private placement basis is a good attempt in this regard. In the late 1990s when several Indian Financial Institutions such as IDBI, ICICI and IFCI started relying on capital markets for resource mobilisation, they needed to issue bonds to the public which required filing of the prospectus for each issuance. To facilitate this, SEBI at that time had introduced a mechanism called an Umbrella prospectus or a Shelf Prospectus.
The current attempt of GID/ KID guidelines is based on a similar concept. Under the GID/ KID concept, a corporate issuer can issue bonds on a private placement basis by filing one comprehensive information memorandum called General Information Document (GID). Once a GID is filed with the Stock Exchange, the corporate is free to issue multiple tranches as per their requirements under the same document.
These tranches can be issued at short notice depending on the market situation. These tranches can be issued just by issuing a brief document called Key Information Document (KID). The idea is fantastic as it will make corporate bond issuance much smoother.
However, there is still a lot desired to deepen the corporate bond markets. We must look at taking the market to the masses the way we have been able to do in our equity markets. It has indeed provided depth in
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