SEBI eases merchant banker rule for listed issuers raising private debt

The Securities and Exchange Board of India (SEBI) has eased the mandatory merchant banker requirement for certain private-placement debt issues, allowing eligible listed issuers to raise debt without appointing a merchant banker, subject to a set of conditions.

The move, effective immediately, follows feedback from market participants and is aimed at making debt issuance easier while expanding retail access to high-rated securities, SEBI said in a circular dated October 7.

Under the revised framework, issuers of debt securities or non-convertible redeemable preference shares through private placement at a face value of ₹10,000 will continue to require a merchant banker by default. However, they can opt out if they meet all the prescribed eligibility criteria.

Who can skip the merchant banker?

The exemption is available only to issuers regulated by an Indian financial-sector regulator such as SEBI, the Reserve Bank of India, IRDAI or PFRDA. The issuer must also have been listed on a recognised stock exchange for at least one year and have no pending fines or penalties from SEBI or stock exchanges for violations of applicable listing regulations.

The issuer must also have maintained a clean repayment record, with no default over the previous three financial years or the current financial year on redemption, repayment or interest/dividend payments relating to debt securities, preference shares, securitised debt instruments, commercial paper, deposits or loans. A statutory auditor’s certificate will be required to establish this.

The debt security must generally be unsubordinated or senior and secured by a first or pari passu charge on identifiable assets of the issuer. For Central Public Sector Enterprises, PSUs and statutory bodies, however, the securities may be either secured or unsecured.

A further key condition is the credit rating. The privately placed debt must carry a rating of at least AA- at the time of issuance. Where an issue has multiple ratings, the lowest rating will be considered for determining eligibility for the exemption.

Stock exchanges will set operational requirements, including disclosure formats and submissions, and will have to confirm the issuer’s eligibility when granting in-principle approval. All other provisions of SEBI’s NCS Master Circular remain unchanged.

The regulator said the changes are intended to promote ease of issuance while widening access to high-rated debt securities. The revised provisions take effect immediately.