Capital market regulator Sebi is planning to ease its norms for ‘Muni Bonds’ to help smart cities and other registered entities working in areas of city planning and urban development work, like municipalities, raise funds through issuance and listing of their debt securities.
The Securities and Exchange Board of India (Sebi) had issued its Issue and Listing of Debt Securities by Municipalites (ILDM) Regulations nearly five years ago and since then seven municipalities have raised nearly Rs 1,400 crore by issuing their debt securities, which are commonly known as ‘Muni Bonds’.
Officials said that the regulator is now proposing to allow this route for a larger number of entities including special purpose vehicles set up under the central government’s ambitious ‘Smart Cities Mission’.
The proposed norms would be presented for Sebi’s board approval at a meeting scheduled later this month, the officials added.
After representations from the industry and market participants for amending its ILDM Regulations to expand this market segment, Sebi had initiated a public consultation process in June proposing certain amendments to these norms.
After taking into account the feedback, the regulator has now decided to amend the regulations to provide a greater flexibility in fund raising and for strengthening the investor protection.
Under the current regulations, this fund-raising route is only available to the issuers defined as a municipality under the relevant articles of the Constitution of India or the corporate municipal entities set up as a subsidiary of a municipality for the purpose of raising funds for a specific municipality or a group of those.
Sebi is now proposing to allow issuance of ‘Muni Bonds’ also by other entities such as entities or bodies like urban development authorities and city planning agencies that perform functions similar to a municipality such as planning and execution of urban development projects.
Since such entities are not defined as a municipality under the Constitution, they have not been able to raise funds from the market through Muni Bonds so far.
Besides, Sebi also plans to allow this route for other structures where a group of municipalities pool their resources together to jointly raise funds through issuance of bonds. These structures are generally known as Pooled Finance Development Funds.
In addition, the regulations would also be amended to allow fund-raising through Muni Bonds by special purpose vehicles set up for implementing the smart city projects.
Under the government’s smart city initiative, SPVs have been set up at city level in form of a limited company under the Companies Act for implementing the projects. These companies are promoted by the state government or union territory and the urban local body of the area.
These SPVs undertake functions like ensuring adequate water supply, sanitation, sustainable and inclusive development of cities etc, thus performing tasks similar to that of municipalities.
The regulator is now proposing that any entity incorporated under the Companies Act, or any statutory body or board, authority, trust or agency established nor notified by an Act of Parliament or an Act of the State Legislature or any SPC notified by the state or central government or any structure set by a state government under the Pooled Finance Development Fund would be eligible to issue Muni Bonds, provided they undertake one or more functions of a municipality.
Sebi is also proposing changes relating to accounting, auditing and disclosure of financial statements to take into account the expanded list of eligible entities and the requirements of such entities to get their accounts audited by the Comptroller and Auditor General of India (CAG) and approved by various authorities.
Besides, Sebi plans to relax norms relating to creation of escrow accounts and do away with requirements for appointing a monitoring agency and establishing a separate project implementation cell.
Also, the existing regulations allow issuance of only revenue bonds with a minimum tenure of three years and maximum five years, if it is a public issue. This clause has been proposed to be dropped.
In case of private placement, the minimum subscription amount per investor is currently Rs 25 lakh, which is being proposed to be reduced to Rs 10 lakh to align it with the regulations for corporate bonds.
In another proposal, a private placement offer can be made to up to 200 persons in one financial year, but this limit would not apply to an invitation to qualified institutional investor.
Besides, the filing of draft offer and the final offer document with Sebi have been proposed for private placements as well, in addition to public issues.
324 stocks hit lower circuit on BSE; Reliance Capital tumbles 24% intra-day
As many as 324 stocks or 12 per cent of the total 2,597 traded stocks on the BSE were locked in the lower circuit and saw only sellers on these counters today. Of these, around 104 stocks belonged to the ‘X’ group, 81 stocks were from XT group, followed by B group (67), T group (44) and Z group (16), the exchange data shows.
Eight stocks – Thomas Cook India, Sterlite Technologies, CG Power and Industrial Solutions, Eveready Industries, Jet Airways India, Bliss GVS Pharma, Reliance Communications and Indiabulls Integrated Services – from the S&P BSE 500 index hit their respective lower circuits during the day.
“The delay in addressing concerns of foreign investors regarding taxation and slowdown in the economy is seeing foreign selling continue with over US$2.5 billion being the collateral damage since the budget,” IIFL Securities said in a client note.
Thomas Cook India (Rs 129), Sterlite Technologies (104) and Housing Development and Infrastructure (Rs 7) were frozen at 20 per cent lower circuit limit on the BSE.
Reliance Capital tanked 24 per cent to Rs 30 in the intra-day trade. It finally settled 20 per cent lower at Rs 32 on the BSE. Stocks trading on future & option (F&O) segment, don’t have any circuit limits.
Market Ahead, August 22: All you need to know before the Opening Bell
Investors are expected to react to market regulator Sebi’s board decision to ease requirements for foreign portfolio investors (FPIs).
The regulator said FPIs would no longer be required to meet the ‘broad-basing’ criteria, under which at least 20 investors were required to establish a fund. It also said, it would rationalise the framework for issuance of participatory notes (P-notes), an instrument once very popular with overseas investors.
That apart, market participants will take cues from the minutes of the RBI’s August monetary policy committee (MPC) meet released yesterday that showed that all three internal members had voted unanimously for a cut of 35 basis points to support economic growth.
Besides, global cues, rupee trajectory, foreign fund flow, stock-specific action, and oil price movement would be on investors’ radar.
Now, let’s see what global markets indicate for Sensex and Nifty.
Asian shares edged higher on Thursday, taking cues from gains in the US stocks. MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.1%, Japan’s Nikkei added 0.4% and Australian shares 0.3%.
At 8:00 am, SGX Nifty, the Singaporean Exchange for Nifty Futures, was down 22 points, indicating a flat to negative start for domestic indices.
On Wednesday, the Sensex settled 0.72 per cent lower at 37,060 level, and the Nifty50 closed at the 10,919-mark, down 0.89 per cent.
The Rupee closed at 71.55, up 16 paise against the US dollar.
And, before we wrap, here’s a look at the top headlines that are likely to move markets–
>> The government, on Wednesday said, it has set no deadline to ban the production of petrol, diesel vehicles or for automobile manufacturers to switch to EVs
>> Government, on Saturday, is expected to hold meeting with economists to discuss economic slowdown.
At last, stock recommendation for the day by Tradebulls Securities–
The brokerage recommends selling Tata Steel at current levels. The stock is expected to drift lower till Rs 321 price confluence zone. Hence, the stock can be sold with stop above previous sessions high of Rs 358.
Charticle: Where FPIs, MFs increased/decreased their stake in June quarter
Equity markets witnessed some sharp upmove in the first half of the calendar year 2019 (CY19), first on the anticipation of the return of the Narendra Modi-led government to the power and then, hopes of desired reforms from the continuing government. The period did see benchmarks, S&P BSE Sensex and the Nifty50, touching their all-time highs of 40,312 and 12,103.05, respectively on June 4, 2019. However, the rally was short-lived as a couple of market unfriendly Budget proposals on July 5 triggered downward trajectory in the stocks.
That said, for the quarter ended June 30, 2019 (Q1FY20), the Nifty50 index has given a modest return of around 1.50 per cent while the S&P BSE Sensex of BSE has gained nearky 2 per cent. The S&P BSE 200 index has remained flat with just 0.38 per cent gain, ACE Equity data show.
During the period, overseas investors (FPIs) infused a total of Rs 31,700 crore in the equity market and FPI ownership in the BSE200 index increased to $444 billion in the June quarter from $433 billion in the March quarter, said a recent report by Kotak Securities.
Top sectors that witnessed FPI buying included financials, insurance, oil, gas and telecommunication services.
Among individual stocks, Gruh Finance, Mahindra Logistics and Godrej Properties saw substantial sequential increase in FPI holdings while they sold large stakes in YES Bank, Dish TV and DLF. Mutual Funds, on the other hand, increased their stake in Emami, Shriram Transport and Vodafone Idea and reduced stake in India Cements, Apollo Tyres and YES Bank, as per the report.
Here’s a look at the top five stocks and sectors where FPIs and MFs increased or decreased their stake in June quarter –
Top five companies where FPIs raised their stake include Gruh Finance, Mahindra Logistics, Godrej Properties, Shriram Transport and SBI Life Insurance while top firms where FPIs decreased their stake during the quarter under review include YES Bank, DishTV, DLF, Escorts, Indiabulls Housing.
Top five companies where MFs increased their holding were Emami, Shriram Transport, Vodafone Idea, BHEL and DCB Bank. On the flip side, they reduced their holding in companies such as India Cements, Apollo Tyres, YES Bank, Graphite India, PVR.
Top five sectors which caught FPIs’ fancy were telecom, diversified financials, insurance, oil, gas & consumable fuels, electric utilities, capital goods. Information technology (IT) services, construction materials, banks, pharma, consumer durables are the top sectors that they were underweight on.
MFs’ bought Telecom, banks, pharma, consumer staples and construction materials during the said period whereas they lowered their investments in Oil, gas & Consumable fuels, Fertilizers and agriculture, Electric Utilities, Gas Utilities, IT services.
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