Sebi mulls allowing companies to issue convertible debentures as an alternative

The market regulator Securities and Exchange Board of India (Sebi) on Monday said it is looking at companies to issue convertible debentures as an alternative route of raising money, as the IPO market still remains tepid, forcing companies to borrow costly funds from other sources.

Sebi Chairman U K Sinha interacting with reporters here on the sidelines of an event said, "The Primary Market Advisory Committee (PMAC) of Sebi is currently debating an alternative route to allow corporates to issue convertibles (debentures), which after certain time must be converted into either equity or other debt instruments."

The IPO market, Sinha continued, has been going through difficult times for quite some time and there were very few IPOs that raised money in the current fiscal.  It has been difficult for companies to raise money through IPOs, he said and also noted investors by and large have not benefitted by investing in the stock markets.

Sinha pointed out that nearly two-thirds of IPOs floated during the last three years are quoting below their issue price. Sebi, according to him, has not been able to finalise the stand whether safety net should be introduced or not. 

Under the proposed safety net scheme, if the market value of the shares falls below the issue price at any time during first six months of the listing, promoters will have to buyback shares at the sale price from original allottees.

However, the buyback is proposed to be subject to a maximum of 1,000 equity shares per allottee.

On real estate investment trusts (REITs), Sinha said SEBI will ask tax authorities to consider incentives saying: "For REITs to be successful, they have to be tax efficient. There's no question about it. We'll talk to the I-T department to make it happen." The capital markets regulator had issued draft guidelines for launching real estate investment trusts (REITs) in India earlier this month. Investors have said the success of these investments would likely depend to a large extent on the tax incentives provided.  REITs are tax-efficient listed entities that mainly invest in income producing real estate assets from which most of the earnings are distributed to their shareholders.