REGULATORY FRAMEWORK GOVERNING CORPORATE DEBT MARKET WHAT ARE DEBT MARKETS?A market where you can buy or sell securities is the debt market.
The markets which is primarily made for the issuance, trading and settlement of various kinds of fixed income securities is called as debt market or credit market. The debt securities are issued by the government, banks, statutory corporations, or corporate bodies in order to raise funds for their capital requirements’.INTRODUCTION TO CORPORATE DEBT MARKET Corporate debt markets are important to intensify the t stability of the country’s financial system.An investigation of corporate debt market encounters crosswise over created and rising markets, for example, US, EU, Japan, China, Malaysia, Korea and New Zealand additionally underscores he significance of solid institutional and administrative system, alongside help from policymakers for building powerful corporate obligation markets.
Funds are raised in the form of equity or debt or the instruments’ which are mixed of both equity and debt. The capital raised by the companies through debt instruments like corporate debentures, fixed deposits, coupon bonds, mortgage bonds, pass through certificates, zero coupon bonds is broadly referred to as corporate debt market. Companies borrow from banks and other financial institutions for the purpose of raising funds in order to develop their business for a specific period of time. Bond is the type of corporate debt which is issued by the companies to a broad base of investors which includes publicREGULATORY FRAMEWORK NEEDED FOR THE DEBT MARKETSIndian debt market consists of government securities market and corporates bonds. In India, a well-developed banquet of laws such RBI Act, Law of Contract, Securities Contracts (Regulation) (SCRA) Act, Government Securities (GS) Act, Payment and Settlement Systems Act, Depositories Act, etc.
define the legal framework for debt markets.The Government Securities Act, 2006 governs the Government Debt Market. The Reserve Bank of India is, therefore, the main regulator for the Money Market. RBI is responsible for the market for repo/reverse repo transactions in corporate debt. The Securities and Exchange Board of India (SEBI) controls corporate debt market in cases where entities raise money from public through public issues.Corporate debt market is regulated by mainly three machineries-Reserve Bank Of India, Securities and Exchange Board of India , and Insurance Regulatory and Development Authority of India.
RBI does not directly regulates the corporate debt market as it is the monetary authority in India and is focused in the flow of credit within the economy, maintaining foreign currency market and maintain economic stability and price stability at the same time. And on the oppugnant SEBI controls the corporate debt market where the entities raise the funds from the public through public issues and has narrow approach towards the development, promotions and regulations of the securities in order to protect the interests of the investors.SEBI (ISSUE of CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009The issue of debt securities which are convertible either partly or fully or optionally into equity shall be guided by the disclosure norms offered on conversion is made by the terms of the above mentioned regulations. The SEBI (ICDR) Regulations, 2009 gives the ultimate freedom to the investors of the holders in order to get their debt converted into the equity shares of the issuer.The salient features of the regulations are· Credit RatingsNo company can make a public issue or rights issue of the convertible debt instruments unless they get credit ratings from two separate agencies.
· Appointment of Debenture TrusteeAccording to section 71 of the Companies, Act 2013 and SEBI (Debenture Trustees) Regulations, 1993, the company is required to have one or more debentures trustees in order to protect the interests of the debenture holders for any debenture issued. If company defaults, the trustee sells the securities and distributes them to the holders.· Debenture Redemption reserveThere should be a separate account opened, the day you issue a debenture in which certain amount should be deposited like EMI every year till the time of redemption no mater you suffer loss or profit.· Creation of chargeDebentures can be secured and un secured. If you want to create a charge on your debenture than it is necessary to assure that your assets are sufficient to cover the principal amount.
If your assets are already charged by the bank, and if you want to again charge those assets then you need consent from the bank to share that assets or pari passu charge. Both of them will have equal stake.· Roll Over of Non-Convertible Portion of Partly CONVERTIBLE Debt InstrumentsOf the convertible debt instruments the non-convertible portion of the issued to the holder which exceeds fifty lakh rupees can be rolled over which means its maturity period can be extended .if company wants to roll over the following are the guidelines given by SEBI-1. Only when 75% of the convertible debt holders through a resolution agree to the rollover2. An auditor’s certificate about the liquidity on the cash flow of the issuer with the notice is send to all the convertible debt instruments holders for passing a resolution.
3. If the holders did not agreed with resolution of converting non-convertible part of the partly convertible debt instruments than the company should undertake that it will give its money back.4. The credit rating issued to the company by the registered agency of SEBI within a period of six months prior to the maturity period should also be communicated to the holders before the rollover.5. The debenture trustee will decide that whether new security of fresh deed is required or not.
· Conversion of Optionally convertible Debt instruments into Equity SharesAt the time of redemption the holder may ask for the equity share or money back or u can ask for both part of money back and part to be converted into equity shares .without the positive consent of the holders the debt instruments cannot be converted into the equity shares.And if holder does not reply which means the holder sends disconsent, then redeem the money back· Restrictions