Sebi eases valuation norms for perpetual bonds on Finance Ministry push




Capital market regulator has eased valuation rule pertaining to


The move comes after the asked Securities and Exchange Board of India (Sebi) to withdraw its directive to mutual fund houses to treat additional tier-I (AT-1) bonds as having maturity of 100 years as it could disrupt the market and impact capital-raising by banks.



In a late evening circular on Monday, said the deemed residual maturity of Basel III AT-1 bonds will be 10 years until 31 March, 2022, and would be increased to 20 and 30 years over the subsequent six-month period.


From April 1, 2023, onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bonds.


In addition, said that deemed residual maturity of Basel III Tier 2 bonds would be considered 10 years or contractual maturity, whichever is earlier, until March 2022. After that, it will be in accordance with the contractual maturity.


AT-1 bonds are considered perpetual in nature, similar to equity shares as per the Basel III guidelines. They form part of the tier-I capital of banks.


Further, if the issuer does not exercise call option for any bond then the valuation will be done considering maturity of 100 years from the date of issuance for AT-1 bonds and contractual maturity for tier-2 bonds, for all bonds of the issuer, Sebi said.


In addition, if the non-exercise of call option is due to the financial stress of the issuer or if there is any adverse news, the same need to be reflected in the valuation, it added.


Based on the representation of the mutual fund industry to consider a glide path for implementation of the policy and request of other stakeholder, Sebi said it has taken the decision.


Further, mutual fund industry body AMFI has been advised to issue detailed guidelines with respect to valuation of bonds issued under Basel III framework, which shall be implemented by April 1, 2021.


Earlier this month, Sebi came out with a new framework that capped debt mutual fund exposure to perpetual bonds, which include AT-1 bonds and tier-2 bonds.


It had also said that the maturity of all should be treated as 100 years from the date of issuance for the purpose of valuation. The framework was to come into effect from April 1, 2021.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor





Source link