Markets regulator Sebi on Wednesday said that it will be mandatory for rated corporates to disclose information on delayed loan repayments and possible defaults by their borrowers to credit rating agencies, thus making it easier for these agencies to take rating actions.

The regulator’s board also cut down the limits for mutual funds to invest in unlisted debt securities while its chairman said that the regulator was examining if mutual funds could be allowed to join inter-creditor groups, currently consisting of banks and other lenders, in those cases where corporates face liquidity stress.

Sebi also eased rules for registration of foreign investors by categorising them into just two from three now and allowed easier transfer of shares by these entities in case of unlisted companies or stocks which are illiquid or suspended from trading. The Sebi chairman also hinted at a delay in implementation of the government proposal to hike minimum public shareholding limit to 35% from the current level of 25%.

The market regulator’s new rules for corporates being rated comes on the face of resistance from banks in disclosing information about delayed loan repayments and possible defaults by their borrowers, citing ‘client confidentiality’ clause. Beginning with loan default by Infrastructure Leasing & Financial Services (IL&FS) last September, there have been several cases of loan defaults and delayed payments by large corporates that inconvenienced a large number of mutual fund investors.

In most of these cases rating agencies were late in flagging financial problems in corporates they rated which in turn led mutual funds to get stuck with bonds issued by those corporates.

To allow faster registration of foreign portfolio investors (FPIs), Sebi simplified documentation requirements for KYC for these foreign investors. These regulations have been redrafted based on the recommendation of a committee set up by the regulator that was headed by H R Khan, a former deputy governor of RBI.

Sebi also said that entities set up in International Financial Services Centres (IFSCs), like the GIFT City in Gujarat, would now be considered as FPIs. The regulator also allowed offshore funds floated by mutual fund houses to register as FPIs. It also said that central banks which are not members of the Bank for International Settlements, can now register as FPIs.

Post the board meeting, while addressing the media, Sebi chairman Ajay Tyagi said that there were various issues which need to be examined before the regulator could make it mandatory for listed companies to have at least 35% public shareholding, up from 25% now. In her Budget speech, finance minister Nirmala Sitharaman had made a proposal on those lines.

Sebi chairman said that liquidity needs to increase in terms of better price discovery, more trading and dispersed shareholding, among others. “There are certain issues that need to be further examined. We will need to look at global regulations whether it is mandated beyond 25% anywhere. What is the right level to be mandated... What will be the short term and long term implications for the companies and for the market,” he told the media.

The chief regulator also pointed out how several listed PSUs are yet to meet the 25% public shareholding norm. “45% of listed PSUs as of now don’t even meet the 25% requirement and they have been given time till August 2020 to comply with (the requirement). All these issues need examination and consideration. For the time being, I will say we will examine all those issues,” Tyagi said. #casansaar (Source - TNN, Times of India)