Industry groups have been abuzz since Monday on the scale of the unlisted bonds market and what the regulatory action on Altgraaf, Tap Invest and Stable Investments might mean for the larger wealthtech sector.
Decoding the Sebi order
On Monday, markets regulator Sebi issued an order asking Altgraaf, Tap Invest and Stable Investments to immediately stop offering any unlisted bonds and non-convertible debentures (NCDs) on their platforms.
It observed that Tap Invest and Atgraaf gave the impression that these products are regulated under the Companies Act and Sebi regulations, hence there is an angle of misselling of securities, bringing such acts under the purview of fraud as per the Sebi Act.
Additionally, the markets regulator said it needs to be investigated whether these acts were conducted in connivance with the companies whose bonds were issued through these platforms.
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Message to industry
Multiple industry insiders ET spoke with pointed out that the larger message that Sebi wants to give is that retail investors should stay away from unregulated products.“Unlisted bonds are issued by every company, but they are to be acquired through private placements only; retail investment in such bonds is what has irked the regulator,” said the founder of a fintech startup operating in the same space.
The fact that unlisted bonds have been issued is not the problem, the issue at hand is that they are being distributed to many retail investors who might be investing without fully understanding the risks involved.
What are unlisted and listed bonds?
Bonds are issued by almost every corporate house to raise funds from the public in lieu of a return at a specific rate of interest. If a company wants to get this bond listed in stock exchanges, there is due diligence that needs to be done, along with publication of mandatory documents and details.
Such bonds can be distributed through online bond platform providers who need to be members of these stock exchanges. Wint Wealth, Jiraaf and Grip Invest are some such regulated platforms.
For unlisted bonds, such mandates are absent. They cannot be distributed to more than 200 investors and once acquired they will need to be held for at least six months before further distribution. Since these are unregulated products, Sebi does not want retail investors to participate in this market.
Risks involved in unlisted securities
In case of unlisted bonds, besides having very limited disclosures, the transactions are happening between peers and not through any regulated stock exchange. There are also no regulated intermediaries involved who can ensure that a retail investor gets the right amount of allotment against the money paid. In the case of listed bonds, there are regulatory processes around fund movement. Additionally, in the case of defaults, there are grievance redressal mechanisms instituted by Sebi.
Size of the problem
Out of the three companies covered under the Sebi investigation, two are well known ventures which have even raised equity funding from prominent investors.
Tap Invest, founded in 2021, has raised around $2.3 million from a bunch of investors including QED Innovation Labs and Snow Leopard Capital. Sebi investigation has found that Tap Invest facilitated more than 100 companies to raise around Rs 400 crore through these issuances.
Altgraaf is run by AI Growth Pvt Ltd, which also operates Jiraaf, a popular but regulated fixed investment platform. Altgraaf was founded in 2021 by Vineet Agrawal and Sourav Ghosh, who have raised $27 million in equity funding for Jiraaf that counts Accel, Harmony Partners and others as investors. Altgraaf has facilitated the sale of Rs 4,400 crore worth of securities and invoices for 75 companies.
The founder who runs a fixed-income investment platform said there are other platforms selling such products too which have not been covered by the Sebi action. But this directive is an indication to the market that the online retail bond market is only for listed securities.
“It might also mean that eventually there will be focus on unlisted equity shares too; there are many online platforms who are selling such equity shares,” he said.