Sebi on Tuesday announced steps to restrict retail investor participation in additional tier 1 (AT1) bonds, instruments that made news after YES Bank got into trouble over them.
The market regulator said in a circular issuance of AT1 bonds should be done compulsorily on the Electronic Book Provider (EBP) platform. Issuers and stock exchanges have to ensure that only qualified institutional buyers (QIBs) are issued these bonds. The minimum allotment and trading lot size shall be Rs 1 crore.
AT1 bonds are also known as perpetual non-cumulative preference shares (PNCPS), innovative perpetual debt instruments (IPDIs) and perpetual debt instruments (PDIs). They are issued by banks to augment their capital base.
Sebi said retail investors might not fully understand the risk associated with these instruments.
“Given the nature and contingency impact of these AT 1 instruments and the fact that full import of the discretion is available to an issuer, may not be understood in the truest form by retail individual investors,” Sebi said.
Investors were stunned in March when the Reserve Bank of India (RBI) proposed writing down of AT-1 bonds issued by YES Bank, forcing bondholders to take a 100 per cent haircut and leading to losses of over Rs 10,000 crore
“These instruments have certain unique features which, inter-alia, grant the issuer (i.e. banks, in consultation with RBI) a discretion in terms of writing down the principal and interest, to skip interest payments, to make an early recall etc. without commensurate right for investors to legal recourse, even if such actions of the issuer might result in potential loss to investors,” Sebi has said.
Sebi has also tightened various disclosure requirements for issuers of such bonds.
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