New Delhi, Oct 7 (SocialNews.XYZ) Capital markets regulator SEBI on Wednesday mandated the use of a colour-coded ‘Credit Risk-o-Meter’ for debt securities, a move aimed at helping investors better understand the credit risk associated with bond and debt market investments before committing their money.
The new framework requires issuers and market intermediaries to prominently display the risk meter across a range of investor-facing documents and platforms, including offer documents, abridged prospectuses, private placement memorandums, advertisements, and websites and mobile applications of Online Bond Platform Providers (OBPPs).
The requirement will apply to listed and proposed-to-be-listed debt instruments, including non-convertible securities, commercial papers, securitised debt instruments, security receipts and market-linked debentures, irrespective of whether they are issued through public offerings or private placements.
Under the framework, credit ratings will be mapped to six risk categories, ranging from “lowest credit risk” for AAA-rated instruments to “high to very high risk of default” for securities rated B and below.
Short-term debt instruments will have a separate version of the meter based on ratings ranging from A1+ to A4/D.
SEBI said that where a security carries ratings from more than one credit rating agency, the Credit Risk-o-Meter will reflect the lowest available rating.
Issuers will also be required to prominently disclose the rating and the name of the rating agency alongside the meter. Unsecured debt instruments must be specifically identified in bold red text to alert investors to the additional risk.
The regulator has also introduced a separate grey “INC” category for cases where a credit rating agency classifies an issuer as “Issuer Not Cooperating” (INC), providing investors with a clear signal regarding disclosure-related concerns.
To prevent misinterpretation, SEBI has prescribed standard disclaimers stating that the meter reflects only the credit risk of a security and should not be treated as investment advice or a recommendation to buy or sell.
Investors will also be cautioned about other risks, including market and liquidity risks. In the case of unsecured perpetual instruments such as Additional Tier-1 (AT1) bonds, disclosures must additionally highlight structural risks and the possibility of a complete loss of invested capital.
Source: IANS
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