SEBI Eyes 17 ISIN Limit for Private Debt to Boost Liquidity
By Market Desk
SEBI proposes increasing the annual ISIN limit for private debt from 14 to 17, aiming to ease liquidity and refinancing pressures for NBFCs and large corporates in India.
The Securities and Exchange Board of India (SEBI) has proposed increasing the maximum number of International Securities Identification Numbers (ISINs) that can mature in a financial year for privately placed debt securities. This limit is set to rise from the current 14 to 17, aiming to alleviate liquidity and refinancing challenges for Non-Banking Financial Companies (NBFCs) and large corporates.
An ISIN serves as a unique 12-character code used globally to identify various securities, including shares, bonds, warrants, and commercial papers. The regulator’s consultation paper outlines specific adjustments to the ISIN distribution within this new framework.
Under the proposed structure, the total of 17 ISINs would be allocated as follows:
For plain-vanilla debt securities, up to 12 ISINs would be permitted, an increase from the current nine. Up to five ISINs would be designated for structured debt securities, market-linked debt securities, Floating Rate Bonds (FRBs), Zero Coupon Bonds (ZCBs), and Debt Capital instruments like Tier-II bonds.
Understanding the Need for Change
Market participants have actively sought a review of the existing ISIN limits, highlighting their impact on funding for NBFCs. They noted that the current restrictions could lead to a bunching of liabilities, making liquidity management more complex.
This situation also escalates refinancing risks, directly affecting the crucial aspect of asset-liability management for these financial entities. The concerns extend beyond NBFCs, proving equally relevant for large corporates.
Implications for Large Corporates
SEBI’s framework for large corporates mandates that entities rated AA or higher, with outstanding long-term borrowings of Rs 1,000 crore or more, must raise at least 25% of their qualified borrowings through debt securities. The regulator acknowledged that the existing ISIN restrictions could hinder these entities from fulfilling this regulatory requirement.
To provide greater operational flexibility, SEBI has also introduced proposals for additional ISINs based on outstanding amounts:
Once the total outstanding amount across the 12 plain-vanilla ISINs maturing in a financial year reaches Rs 15,000 crore, one additional ISIN may be granted. Subsequently, for every further Rs 3,000 crore of outstanding amount maturing in that financial year, one more additional ISIN could be allowed.
Proposed Exclusions and Further Easing
The regulator also suggested excluding certain types of ISINs from these prescribed limits to encourage specific market activities. This includes ISINs related to Government of India-serviced or Extra Budgetary Resources (EBR) bonds, which would no longer count towards the maximum.
Furthermore, ISINs pertaining to Environmental, Social, and Governance (ESG) debt securities are proposed to be excluded, a strategic move aimed at fostering the issuance of ESG-linked debt. Another significant proposal involves removing the mandatory requirement for an issuer to list all outstanding unlisted Non-Convertible Debentures (NCDs) issued on or after January 1, 2024, when listing new debt securities. This aims to further ease the listing process.
These comprehensive proposals by SEBI are designed to streamline the debt market, enhance liquidity, and reduce refinancing burdens, thereby supporting the financial health of key economic players.