Capital market regulator Securities and Exchange Board of India (SEBI) has eased valuation rule pertaining to perpetual bonds. The transfer comes after the Finance Ministry requested SEBI to withdraw its directive to mutual fund homes to deal with further tier-I (AT-1) bonds as having maturity of 100 years because it may disrupt the market and impression capital-raising by banks.
In a late night round on Monday, SEBI mentioned the deemed residual maturity of Basel III AT-1 bonds shall be 10 years till 31 March, 2022, and could be elevated to twenty and 30 years over the following six-month interval. From April 1, 2023, onwards, the residual maturity of AT-1 bonds will grow to be 100 years from the date of issuance of the bonds.
In addition, SEBI mentioned that deemed residual maturity of Basel III Tier 2 bonds could be thought of 10 years or contractual maturity, whichever is earlier, till March 2022. After that, will probably be in accordance with the contractual maturity.
AT-1 bonds are thought of perpetual in nature, much like fairness shares as per the Basel III tips. They kind a part of the tier-I capital of banks.
Further, if the issuer doesn’t train name choice for any bond then the valuation shall be achieved contemplating 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 mentioned.
In addition, if the non-exercise of name choice is because of the monetary stress of the issuer or if there’s any opposed information, the identical should be mirrored within the valuation, it added.
Based on the illustration of the mutual fund trade to think about a glide path for implementation of the coverage and request of different stakeholder, SEBI mentioned it has taken the choice.
Further, mutual fund trade physique AMFI has been suggested to difficulty detailed tips with respect to valuation of bonds issued underneath Basel III framework, which shall be applied by April 1, 2021.
Earlier this month, SEBI got here out with a brand new framework that capped debt mutual fund publicity to perpetual bonds, which embrace AT-1 bonds and tier-2 bonds. It had additionally mentioned that the maturity of all perpetual bonds must be handled as 100 years from the date of issuance for the aim of valuation. The framework was to come back into impact from April 1, 2021.
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