On October 6 2010 the Securities and Exchange Board of India (Sebi) placed the Draft Securitized Debt Listing Agreement (the Listing Agreement) on its website, inviting comments from various stakeholders.
Although it can be perceived as a step in the right direction, certain issues relating to the Sebi (Public Offer and Listing of Securitized Debt Instruments) Regulations, 2008 (the Regulations) have not been addressed.
Further, the restrictive approach of Sebi, towards the regulatory framework governing issue and listing of securitised debt instruments, is evident from the lack of issuances in the period of over two years since the Regulations were notified.
Sebi's intention of greater transparency having been to some extent achieved, the Regulations have hampered rather than attracted domestic participants, not to mention foreign portfolio investors.
Bearing in mind that the subscribers to the securitised instruments are mainly institutions, issuance and listing mechanisms in respect of instruments being placed with institutional investors could be simplified by relying more on the assessment of a recognised rating agency (particularly considering the requirement under the Regulations for a credit rating to be obtained from two registered rating agencies) rather than voluminous disclosures.
This aspect was previously recognised by the Committee on Fuller Capital Account Convertibility (the Committee) in its report dated July 31 2006. In fact the Committee also highlighted the issues relating to the tax treatment of special purpose vehicles (SPVs) that issue the securitised debts. It was recommended that the Government should provide an explicit pass through treatment to SPVs on par with the pass-through treatment granted to venture capital funds.
The Listing Agreement reflects the Debt Listing Agreement notified by Sebi, the key differential aspect being the substantial level of performance related information to be disseminated on a monthly basis by the SPV. Moreover, the Listing Agreement does not provide for a simpler disclosure cum compliance mechanisms for SPVs that have listed securitised debts.
A concern way back in 2008, when the Regulations were notified, was the uncertainty about the impact such Regulations might have on the market given that securitisation in India has almost fully migrated to the bilateral route (ie via direct assignment without the involvement of a SPV). This concern remains.
A further push is therefore required by Sebi to encourage market participants and garner issuances under the Regulations. In other words, Sebi needs to comprehensively overhaul the Regulations so that listed securitised debt instruments become a feature of the Indian capital markets.