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Informist, Saturday, Nov. 2, 2024

 

NEW DELHI – The Securities and Exchange Board of India Friday floated a consultation paper on the issue and listing of securitised debt instruments. It has sought feedback on the paper by Nov. 16. 

 

The SEBI paper proposed adding a minimum risk retention of 10% on the originator of securitised debt instruments. The minimum risk retention would be 5% if the scheduled maturity of receivables within the instrument is below 24 months. A minimum holding period by the originator of underlying receivables will also be specified from time to time, the paper said.

 

The originator of the security and the obligor must have a business relationship of three years with each other. They should also each have a track record of three financial years of operations which result in either securitisation – for the originator – or the creation of the receivable – for the obligor.

 

The paper also moots changing the definition of debt to listed debt securities, as well as trade, rental and equipment-leasing receivables. The asset pool for the securitised debt would only have a maximum of 25% from a single obligor, with single-asset securitisation still not allowed, SEBI said. The assets should be homogenous, the paper said. 

 

"In case of trade receivables, such business relationship should have spanned atleast two cycles of payments with no defaults, and the receivables arising from such obligors proposed to be securitised should have the same payment cycle," the consultation paper said.

 

The paper will change the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008, which were last amended in August 2023. The proposed changes relate to the issuance of securitised instruments, the structure of the transaction, as well as changing norms for trustees and disclosures.

 

The paper proposed that securitised debt instruments only be issued and transferred in dematerialised form. The minimum ticket size for originators regulated by the Reserve Bank of India would be defined by the central bank, which is currently at INR 10 million, the paper said. For non-RBI regulated entities, SEBI proposed the size of investment by a single investor would also be INR 10 million, while for securitised debt instruments with listed securities as underlying, the minimum ticket size would be the lowest face value of the listed securities.

 

Private placement of securitised instruments would comprise up to 200 investors, which does not include qualified institutional buyers, the consultation paper said. Beyond this, it would be categorised as a public issuance. The offer period was also squeezed to between three and 10 days. The current norms allow any offer period under 30 days.

 

The SEBI also proposed adding clean-up call options on securitised debt of up to 10% of the face value of the instrument. These would not be mandatory upon the originator, the regulator said. The originator can also offer a liquidity facility against the securitised debt, to smooth out the timing differences between the cash flow from underlying and the payout to investors.  

 

"Clean-up call options, if any, should not be structured to avoid allocating losses to credit enhancements or otherwise structured to provide credit enhancements and should be in accordance with the norms as specified from time to time," the consultation paper said. 

 

A special purpose distinct entity, engaged in the transaction of such instruments, must have trustees that are SEBI-registered debenture trustees. These trustees can be removed or replaced without SEBI approval, according to the consultation paper. Meanwhile, updated disclosures on securitised debt instruments must be made on a semi-annual basis, the paper said, and any rating changes to these must be disclosed on a continuous basis.  End

 

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

 

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