Pvt debt scope curbed for core sector fin

Several key decisions on infrastructure financing were taken at a high-level meeting in the capital today to facilitate the availability of long-term finance for infrastructure projects.

It was decided at the meeting to restrict private placement of debt to qualified institutional bidders (QIBs) against the current practice of opening the market to all players. QIBs are considered better equipped to assess and handle the risks involved in big-ticket corporate bond issues.

It was also decided to give banks the flexibility to invest in unrated corporate bonds against the practice at present of restricted exposure in such bonds.

Officials also agreed that the Securities and Exchange Board of India (Sebi) would be the sole regulator of all issuance of corporate debt securities, to minimise multiplicity of regulations. Currently, guidelines on debt security are issued by Sebi, the Company Law Board and stock exchanges.

The decisions were taken at a meeting held today to discuss the recommendations of the Deepak Parekh Committee on infrastructure financing.

The meeting was attended by officials from the finance ministry, the Reserve Bank, the Insurance Regulatory and Development Authority, Sebi and India Infrastructure Finance Company. Finance Secretary D Subbarao chaired the meeting.

The Parekh committee was set up by Finance Minister P Chidambaram on December 26, 2006, to suggest ways to facilitate financing the country's infrastructure needs by improving access to long-term risk capital, principally from foreign sources, given domestic banks' inability to lend long term.

"Sebi has agreed to the proposal. It is likely to be implemented in a couple of months," a finance ministry official said.

Only two chapters of the Parekh report could be discussed today. The other recommendations will be taken up at a future meeting.

"Making Sebi the sole regulator of corporate debt will lead to more concerted development of the corporate bond market and greater accountability," said Prithvi Haldea of Prime Database.

On the move to confine private placement for debt to only QIBs, Haldea said: "It will strengthen the market for private placement of debt. As limited disclosures are made by bond issuers, institutional investors will have the capability to take more informed decisions."

The present numerical restriction of minimum 50 investors to qualify as private placement is being done away with.

The officials also agreed that insurance companies will be allowed to invest more in corporate bonds. The IRDA has set up a group to finalise the required guidelines.

On the issue of uniformity in stamp duty on debt instruments and on securitisation transactions, officials agreed to consult state governments.