Sebi considering allowing companies to issue convertible debentures with IPOs

Posted By: Religare
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Sebi to allow companies to issue convertible debentures
The market regulator is considering the idea of allowing companies to issue convertible debentures with equity shares in the Initial Public Offers (IPOs), according to an Economic Times report.

The report said the move comes following criticism against the so-called safety net proposal which allows investors to seek compensation from the issuer, if share price falls sharply soon after the listing.

Economic Times quoted Sinha as saying that "One alternative that they (Sebi's primary market advisory committee) are currently debating is of allowing corporates to issue convertibles. So they (companies) issue convertibles and after a certain time, they necessarily have to be converted into equity or they are treated as debt instrument." Sinha was speaking to reporters on the sidelines of a conference on 'Investor Protection in Capital Markets', jointly organised by Sebi and the German Federal Financial Supervisory Authority on Monday.

"There were two very strong views on safety net. One was that the IPO is a risk investment, so how can anyone assure a capital protection on that. This goes against the whole idea of raising risk capital and if Sebi insists on this, then, going forward, there would be a problem. The other view was that what's Sebi going to do if two-thirds of the IPOs are trading below issue price for months," Sinha said, as per the ET report. "We have got more responses against the safety net than for it," he added.

Read more about: convertible debentures, ipos
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