Whalesbook
Sebi's proposed overhaul aims to bolster the municipal debt market through enhanced disclosures and refined financing mechanisms. Municipal issuers seeking to refinance existing loans will now face rigorous disclosure requirements, including details on current lenders, interest rates, repayment schedules, and past restructuring. These measures are designed to furnish investors with a clearer picture of an issuer's financial health and liquidity risks, addressing a current gap where refinancing wasn't explicitly permitted.
A significant restriction targets the use of issue proceeds, capping the allocation for working capital requirements at 25 percent. Funds must be tied to project-specific needs, prohibiting general corporate purposes. Issuers must also clearly state the proportion earmarked for such working capital use, increasing accountability.
The regulator is also introducing provisions for pooled financing structures involving multiple municipalities. These arrangements will necessitate agreements with a pooled finance vehicle, structured as a trust or company. A robust two-tier escrow mechanism is proposed, requiring interest and sinking fund accounts at both the municipality and Special Purpose Vehicle (SPV) levels. The SPV must maintain funds equivalent to one year's interest obligations, with credit rating agencies evaluating each participating municipality.
Alignment with non-convertible securities regulations is also on the agenda, standardizing face values to ₹1 lakh or ₹10,000 and linking trading lots. Furthermore, Sebi plans to enable municipalities to issue ESG debt securities, mirroring existing norms and encouraging sustainable finance. Investor incentives, such as additional interest or discounts for senior citizens, women, defence personnel, and retail investors, are also part of the proposal to broaden participation. These changes stem from recommendations by a Sebi working group and discussions with the Corporate Bonds and Securitisation Advisory Committee (CoBoSAC). The consultation paper follows a review of 2015 regulations, as 22 municipal corporations collectively raised ₹4,540.34 crore through 31 issuances by March 2026.