The Securities and Exchange Board of India, or Sebi, on Tuesday proposed to allow unlisted companies to list their convertible securities on exchanges in an effort to boost the market for such instruments.
Convertible securities offer a combination of both debt and equity features. Such a security can either be converted into equity if the issuer of the security performs well or can be redeemed at a pre-determined maturity date if the performance of the issuer is not up to par.
The market regulator proposed that an unlisted company can make a public issue of compulsorily convertible securities and list them on the institutional trading platform of stock exchanges.
“Currently, while the existing shareholders are permitted to sell their shares to public, the same is not specifically mentioned for convertible securities. It is suggested to explicitly permit the existing holders of convertible securities as well to sell their securities to public,” Sebi said in a discussion paper.
Sebi proposed that optionally convertible debentures (OCDs) and optionally convertible preference shares (OCPs) may be treated as debt and companies can list them on exchanges by complying with the existing norms on sale and listing of debt securities.
Also, Sebi proposed to stipulate a maximum tenure of five years for convertible securities issued by a listed firm. At present, the tenure of convertible securities issued to the public is not specified, except for financing of a group company where the maximum tenure can be 18 months.
Between 1990 and 2001, Sebi said, the Indian market saw 284 issues of convertible debentures by small, medium and large companies with a total fund raising of around Rs.14,000 crore, with 57 issues being larger than Rs.50 crore. “However, since 2000 the market for public issue of convertible securities has dwindled,” the discussion paper said.
Sebi has sought public comments on the proposals by 23 December, 2015.
This article was first published on Livemint.com