The Securities and Exchange Board of India introduced significant amendments to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (Regulation).
Background:
On 8 July 2024, SEBI issued an amendment to the Regulation which is primarily aimed at streamlining and improving the process of the regulatory framework which is applicable to issuance and listing of non-convertible securities.
Key Changes:
- Record Date: A new obligation of the issuer has been added. SEBI has mandated that issuers must fix a record date for the purposes of payment of interest, dividend, payment of redemption or repayment amount or for such other purposes as specified by the Board. Further, this record date must be set 15 days before the due date for these respective payments.
- Due Diligence Certificate by Debenture Trustee: Regulation 40 of the said Regulations has now been made more exhaustive, and it now dictates that a due diligence certificate in the newly mandated formats shall be furnished at the time of filing the draft offer document with the stock exchange(s), prior to the opening of the public issue of debt securities, as well as at the time of filing of the listing application by the issuer. Further, the stock exchanges have been mandated to disclose the offer document and due diligence certificates provided by the debenture trustee on its website.
- Format for Due Diligence Certificate: The formats for the due diligence certificates have been further detailed and separate formats have been provided for secured debt securities and unsecured debt securities. The formats for due diligence certificates to be furnished at the time of the filing of listing applications has been added separately as a part of the new schedule, Schedule IVA. Now the certificates require the debenture trustee to certify inter alia that the issuer has either executed the debenture trust deed as per the terms of offer document/placement memorandum and debenture trustee agreement or that it has given an undertaking that the debenture trust deed shall be executed before the filing of listing application.
- Listing Application under Regulation 44: In consonance with the amended Regulation 40, the format for due diligence certificate to be furnished by the Debenture Trustee at the time of filing of listing application has also been altered, and is now to be filed in the formats given under Schedule IV A. Newly added Sub-Regulation 3A under Regulation 44 reemphasises that the stock exchanges shall disclose the offer document and due diligence certificates provided by the debenture trustee on their website.
- Web-link and a static quick response code (QR) of the audited financial statements: An option has been introduced for issuers to display their audited financial statements by way of a QR code or by reference to a web link. A proviso has been added to Clause 3.3.1 of Schedule I to the Regulations (Disclosures for Issue of Securities) which provides an issuer whose non-convertible securities are listed as on the date of filing of the offer document or placement memorandum, to provide only a web-link and a QR to access the audited financial statements in the offer document or placement memorandum subject to the conditions stated therein. Whereas, this provision does not take away from the requirements of disclosure of financials in the issue document, it certainly eases the process, and does away with the need for repetition.
MHCO Comment: This amendment to the said Regulations, enhances transparency and streamlines the disclosure processes, benefiting investors and issuers by ensuring timely access to critical information. SEBI has enhanced the importance of the certification by the Debenture Trustees to the benefit of investors. It is also interesting to see SEBI promote use of technological advancements to ease the regulatory burdens, while also ensuring that the interests of investors are not prejudiced.
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