Clarification on the valuation of bonds issued under Basel III framework.
Summary
SEBI clarifies the valuation methodology for bonds issued under the Basel III framework, specifically addressing AT-1 and Tier 2 bonds. A glide path is established for deemed residual maturity based on the issuance date, transitioning from shorter periods to 100 years by April 2023. The circular mandates that Macaulay Duration calculations reflect these deemed maturities and requires AMFI to issue detailed implementation guidelines.
Text
SEBI stated that the maturity of all perpetual bonds shall be treated as 100 years from the date of issuance for valuation purposes.
Deemed residual maturity for Basel III AT-1 and Tier 2 bonds follows a specific timeline: 10 years till March 31, 2022; 20 years till Sept 30, 2022; 30 years till March 31, 2023; and 100 years from April 1, 2023 onwards.
Macaulay Duration for bonds issued under Basel III framework shall be calculated based on the deemed residual maturity mentioned in the table.
If the issuer does not exercise the call option, valuation and Macaulay Duration must consider 100 years maturity for AT-1 Bonds and Contractual Maturity for Tier 2 bonds.
If non-exercise of call option is due to financial stress or adverse news, the same shall be reflected in the valuation.
AMFI is advised to issue detailed guidelines with respect to valuation of bonds issued under Basel III framework, which shall be implemented by April 01, 2021.
All other provisions mentioned in the circular No. SEBI/HO/IMD/DF4/CIR/P/2021/032 dated March 10, 2021 remain same.
This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.
Source: SecMarx — Clarification on the valuation of bonds issued under Basel III framework.. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.