Sources suggest grandfathering may still be allowed. On October 1, the regulator issued the directions on unlisted debt securities, but allowed grandfathering of those securities held as of the circular date. This meant that such papers would be exempted from the limits until their maturities.
The one-time window offered by Sebi
comes at a time when debt schemes have undergone heavy redemption pressure, which has indirectly increased their exposure to unlisted papers and other less liquid portfolio holdings.
“Due to higher redemptions following the pandemic and the lockdown, the asset size of several debt schemes has shrunk. To meet redemptions, fund managers have had to rely on selling more liquid investments in their portfolios. In a few cases, the concentration to unlisted papers has gone to up to 50-70 per cent and in some, it is between 11 per cent and 22 per cent,” said a debt fund manager.
“The window will help such schemes to bring down their exposure as close as possible to the Sebi-stipulated limits over the coming months,” he said.
However, experts say it remains to be seen how many issuers are open to getting debt papers listed. “A fund house can only request the company to get its papers listed. Listing will be good for the overall system and if some issuer is unwilling to list, it will show its intent,” said Joydeep Sen, consultant at Phillip Capital.
In its October circular, Sebi
had directed fund houses to ensure that unlisted exposure has simple structures. This should put out instruments, such as zero-coupon bonds, securities with credit-enhancement, and structured obligations, off-limits in the unlisted space.
also pointed out unlisted debt securities, particularly those where a single investor invested, suffered on two fronts. “Opaqueness of structure and the true nature of risk on one hand, and lack of ongoing disclosure in respect of financials of the issuer… (on the other).”