on Mar 23, 2021)Mumbai: To resolve issues that had cropped up between itself and the department of financial services (DFS) within the finance ministry on the issue of valuation of AT1 bonds, markets regulator Sebi on Monday provided another way to value these instruments. The new process would maintain a middle path between the two entities.
Sebi said that, till March 31, 2022, these bonds will be valued at 10-year residual maturity, between April and September 2022 at 20-year, between October 2022 and March 2023 at 30-year and thereafter (in effect, from fiscal 2023-24) at 100-year residual maturity.
On March 10, Sebi had come out with a circular to value AT1 bonds, which are also called perpetual bonds, with 100-year maturity from the day of issue. Several banks issue these bonds with mutual funds (MFs) being one of the biggest buyers of these instruments. As a result, the Sebi circular was seen as limiting fund houses’ appetite for these bonds. Since such a situation would have been detrimental to the interest of banks which issue these bonds, the DFS had asked Sebi to reconsider its circular.
The fresh Sebi circular issued on Monday was aimed at controlling the damage.
According to a top fund manager, the latest Sebi circular is better than valuing AT1 bonds at 100 years to maturity from April 1, 2021 itself, which was specified in the March 10 circular. The current circular gives a softer ‘glide path’ to AT1 bonds.
Additionally, Sebi’s decision that secondary market prices will be used for valuation, and if these bonds are not traded then 10-year maturity should be taken for valuation, would help stabilise the market price of these bonds.
