Brief Overview:
SEBI proposes to introduce Liquid Window Facility to further boost the liquidity in the bond market.
LWF shall be a discretionary mechanism of the issuer of a listed bond (issued either by way of public issue or private placement) that shall allow the bond investors to exercise their right of put option on the dates more specifically set out in the offer.
Technical Details:
The key features of LWF are as follows:
1) Availability: The LWF shall be accessible by bond holders only for exit by way of put option. Accordingly, it will be exercisable only upon the lapse of 1 (one) year of the date of issue of the bond. It shall be linked to the put option dates available to the bond investors as per the terms of the offer.
2) Quantum of LWF: Minimum 10-15% of final issue size of the bonds. Aggregate limits and sub-limits for put option to be exercised in each window to be disclosed in the offer document. If the put options exercised exceeds the prescribed limits, then the acceptance will be on proportionate basis.
3) LWF Window: The LWF window shall remain open for a period of 3 working days during the trading hours. The bond issuer is required to provide an intimation of the LWF schedule in the upcoming financial year, 5 working days prior to the start of the financial year.
4) Manner of exercise: The issuer shall inform the list of eligible investors (with a particular focus on retail investors) that shall avail LWF. The bonds tendered under LWF shall be valued as per the chapter 9 of the SEBI Master Circular on Mutual Funds. It will be ensure that not more than 1% discount is offered on the bonds.
5) Treatment of blocked bonds: The bonds blocked in the LWF shall be treated as follows by the issuer within 45 days of closure of LWF or end of quarter (whichever is earlier):
(a) Sell on debt segment of the stock exchange; or
(b) Sell on the RFQ platform, if eligible to access; or
(c) Sell through an online bond platform provider; or
(d) Extinguish the bonds.
The above has been proposed to be introduced by the Securities and Exchange Board of India (“SEBI”) through the consultation paper issued by it on 16th August 2024. The comments shall be accepted SEBI until 06th September 2024.
JC takeaway:
The introduction of the LWF (i) shall enable easy exit for the investors and (ii) shall assist to overcome the operational challenges faced at the time of exit on account of lack of liquidity. At the same time, it proposes to cast added obligations on the bond issuer making it responsible as the market maker.
This move shall strength the liquidity and deepen the bond market. It will provide a boost in the secondary market for bonds and encourage retail participation.
For further details, please see:
1723815955281.pdf (sebi.gov.in)
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