BSE to list sovereign gold bonds this month

Trading to start next month; investors can buy bonds from brokers when the issue is announced like an IPO

The Sovereign Gold Bond (SGB) scheme, which has attracted investments worth five tonnes of gold so far, is likely to listed on the BSE by the end of this month with trading starting by early June, according to sources.

According to a BSE official, these bonds would be listed in the debt segment like all other government securities. When a new bond issue is announced, investors can invest in it the way they do in equity initial public offerings (IPOs). Listing is expected to be a game changer as it could attract better response to bonds. All registered brokers of the BSE can participate in such bond issues through the SGB system.

When bond issue norms were announced, it was planned to get them listed within six months of the issue. So far, three tranches of bonds have been completed and the first one ended in November 2015. In November, bonds were sold at Rs 2,682 a gram (999 purity gold price). Currently, India Bullion and Jewellers Association’s price for that is  Rs 3,000, which is around 20 per cent higher. So, if these bonds start trading today, investors can exit at a steep premium within six months.

However, liquidity will be an issue initially and bonds might be sold at a marginal discount of one or two per cent. Discount will be decided based on liquidity, which is expected to be low in the initial period. Low liquidity means higher discount to the prevailing gold price. The government, which is a borrower of the funds under the gold bonds, also pays 2.75 per cent per cent calculated of the price at which bonds were issued.

The highest limit for eligible investors to bonds is 500 grams, which is expected to remain in place even after listing. According to the BSE official, the final word from the ministry is awaited.

The second tranche of bonds was issued in mid-January. The listing of that might take a few months more. The last tranche was issued in mid-March, where bonds worth a little over a tonne were sold. The timing of that was considered bad as usually, investors are busy doing tax planning in March, rather than buying gold. That was issued at a gold price of Rs 2,600 a gram.

Bonds were issued as a physical certificate and in demat form. Demat bonds would be traded immediately while a different mechanism will be required for physical bonds. According to the norms prevalent in the capital market, physical bonds have to be dematerialised before they are traded on the stock exchanges.

At the time of issue, the certificate will be issued by the Reserve Bank of India through its e-Kuber system and sent by e-mail to all investors after allotment.

To incentivise brokers to deal in gold bonds, the BSE has proposed a commission of 50 basis points (bps) of the invested amount. However, incremental commission sharing for higher volume slabs and base sharing at 50 bps will also be possible.

“We can even go up to 90 bps on the highest slab. It will be distributed by the day after the allotment,” said the BSE official cited above. There will not be any stamp duty at the time of IPO of bonds, but the same will be applicable for secondary markets buying and selling.

If trading in sovereign gold bonds picks up, it will get the much-needed liquidity which will make them a superior instrument compared to gold exchange traded funds.