Exclusive: BluSmart crisis likely to draw Sebi heat on unlisted bond market

Economic Times

27-04-2025

The unlisted bond distribution market is likely to come under scrutiny of the Securities and Exchange Board of India in the wake of the crisis at all-electric cab hailing startup BluSmart Mobility, said industry insiders.
BluSmart sold more than Rs 100 crore of unlisted, unsecured corporate bonds to high-net-worth individuals as well as some retail investors in the past one year, mostly facilitated by fintech platforms like Yubi, Centricity and Klub.
Sebi is not in favour of allowing retail investors to have exposure to such products which are typically high risk. The markets regulator in November 2024 had asked AltGraaf, Tap Invest and Stable Investments to stop selling any unlisted bonds and NCDs (non-convertible debentures) on their platforms.Industry executives said the regulator may now look deeper into these products and how they are sold to figure out if there are mis-selling. The regulatory action could vary from fresh guidelines for everyone to follow to imposing major fines on these platforms, they said.'This BluSmart incident will have a larger impact on the bond distribution industry because Sebi is against wide distribution of unlisted bonds. I think they will take more strict action against platforms selling such products,' said the founder of an online bond distribution platform.
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Sebi issued OBPP (Online Bond Platform Provider) regulations in November 2022 to regulate startups selling fixed income instruments like corporate bonds to retail investors.Wint Wealth, Aspero, Jiraaf and Grip Invest are some of the regulated OBPPs in the country. They typically sell listed bonds which offer a rate of interest higher than fixed deposits, in the range of 9% to 13%, depending on the size of the issue and the company issuing. Industry estimates suggest that the regulated space operates on a monthly volume of around Rs 500 crore.These firms are prohibited from dealing in unlisted securities. But beyond these regulated platforms, there are many online entities which sell unlisted stocks as well as unlisted bonds.Yubi sells unlisted bonds through its own platform but runs Aspero, as a separate business, for its OBPP compliant operations.'Scrutiny is bound to go up; the regulator will seek details around which platform is selling what, are platforms selling unlisted bonds through offline channels,' said another founder of an online bond distribution platform. 'Those who were abiding by the rules should be okay, scrutiny will only clean up this space.'Wealthtech firms have two things going for them; one is growing affluence in the country which has created a population with disposable income for risky investments and second the IPO market which has shown some very exciting returns in the last few years. Both factors have driven investor interest in unlisted shares and unlisted corporate debt, especially in companies which can go for an IPO. Digital platforms are tapping on this growing interest to expand their operations.But this enthusiasm is also opening up opportunities for mis-selling.
In the wake of the discovery that the electric cars that BluSmart was operating were actually bought by Gensol Engineering and hypothecated to public sector enterprises Power Finance Corporation and IREDA (Indian Renewable Energy Development Authority), investors who bought these NCDs believe there was a major lapse in due diligence by some of these platforms that sold the debt to them. 'Some of these platforms sold these instruments without keeping any hypothecation on the vehicles. The underlying security against these loans was future cash flow. Now that business has stopped on the platform, how will the cash flow get impacted and how will repayments happen is the major question,' said an investor who has exposure to BluSmart's NCDs.
This comes at a time when Sebi has been planning to limit the exposure of retail investors in all forms of securitised debt instruments (SDIs). The regulator in the minutes of its board meeting held on December 18, 2024 discussed bringing in a minimum investment of Rs 1 crore in SDIs by regulated entities as well as unregulated entities. It also wants to bring in a limit of 200 on the maximum number of people who can subscribe to a privately placed SDI. 'These steps will anyway curb the retail participation in this market. Now with such instances taking place in the unlisted bonds space the regulator might come up with more restrictions to ensure retail participation is further limited,' said the founder of an online bond distribution platform.
Also Read: BluSmart bond holders may invoke immediate repayment provisions