1. INTRODUCTION
The Securities and Exchange Board of India ("SEBI") has recently approved quite a few significant regulatory changes to the framework governing the issuance of listed debt securities and non-convertible redeemable preference shares ("NCRPS"). The changes have been introduced by way of the board meeting held on June 27, 2024 ("Board Meeting")1 and the subsequent circular issued by SEBI dated July 03, 2024 ("Circular")2 . This update summarizes the key takeaways from the outcome of the Board Meeting as well as the initiatives approved by the SEBI pursuant to the Circular.
1.1 KEY PROPOSALS APPROVED IN SEBI'S BOARD MEETING
- Streamlining the process of public issuance of debt
securities and non-convertible redeemable preference shares to
enable issuers to have faster access to funds
- Reduction in the period for seeking public comments on
the draft offer documents filed for public issuance of debt
securities and non-convertible redeemable preference
shares
The SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, as amended from time to time, ("ILNCS Regulations") currently prescribes for draft offer documents for issuance of debt securities and NCRPSs filed with stock exchange(s), to made available to the public for seeking comments for a period of 7 (seven) working days from the date of filing of the draft offer document with the stock exchange(s). The SEBI has now, pursuant to the Board Meeting approved a reduced timeline of 1 (one) working day for issuers whose specified securities3 are already listed. For other issuers, the timeline has been reduced to a period of 5 (five) working days. - Reduction of timeline for minimum subscription period
to 2 working days
With the aim to further streamline the process of listing of public issuance of debt securities and NCRPSs, the SEBI has reduced the minimum subscription period which starts from the issue opening date from 3 (three) working days to 2 (two) working days. - Reduction of timeline for listing of debt securities
and NCRPS to 'T'+3 working days for public issuance of debt
securities
To further reduce the time undertaken by an issuer to list debt securities and NCRPSs in case of public issuance, and align the timelines for issuance of privately placed debt securities, the SEBI has reduced the existing timeline of 'T'+6 days (where T is the date of opening of the issue), by half. Accordingly, the listing process of publicly issued debt securities and NCRPSs now must be completed within T+3 days
To assist all stakeholders in reducing the timeline for listing of debt securities and NCRPSs, issued on a public issuance basis issue opening, the SEBI has permitted companies to adhere to the reduced timelines on a voluntary basis for a period of 1 (one) year, and mandatorily thereafter. - Flexibility to issuers of debt securities and NCRPS on
a public issuance basis to issue advertisements through electronic
modes.
With a view to provide greater flexibility to the issuers for advertising the issue of debt securities and NCRPSs, SEBI has granted issuers the discretion to utilize electronic modes of advertisement. This is subject to the condition that a window advertisement (containing a QR code and a link to access the full advertisement) is published in newspapers.>
- Reduction in the period for seeking public comments on
the draft offer documents filed for public issuance of debt
securities and non-convertible redeemable preference
shares
- Rationalization of disclosure requirements in offer
documents for issuance of non-convertible securities
- With an aim to strengthen ease of doing business, the SEBI has approved deletion of disclosure of permanent account number (PAN) and personal address of promoters of the issuers in offer documents.
- The SEBI has approved disclosures regarding (i) details of branches, and (ii) details of vendors, in case of acquisition of immovable property from the issue proceeds in form of a QR code and weblink, along with providing the said details to debenture trustee. Note that such details provided by the issuer and received by debenture trustee will now be required to be maintained by depositories in the 'Security and Covenant Monitoring System'. This will further ease the issuance process of non-convertible securities
- Extending further ease of operational flexibility to
Alternate Investment Funds ("AIFs")
- To facilitate ease of doing business and provide operational flexibility to Category I AIFs and Category II AIFs, the SEBI has now permitted such AIFs to borrow for a period of up to 30 (thirty) days for meeting temporary shortfall in drawdown from the investors, while making investments. In this regard, the SEBI has clarified that the cost of such borrowings would need to be charged to the specific investors responsible for the shortfall.
- However, to prevent misutilization of such permitted borrowings, the SEBI has prescribed a cooling-off period of 30 (thirty) days between 2 (two) borrowings availed by Category I AIFs and Category II AIFs.
- With an aim to protect investors of an AIF, the SEBI has clarified that investors in Large Value Funds for Accredited Investors ("LVFs") can only be extended up to 5 (five) years, subject to approval of two-thirds of the unit holders by value for such extension.
1.2 REDUCED DENOMINATIONS FOR DEBT SECURITIES AND NCRPS ISSUED ON A PRIVATE PLACEMENT BASIS
- The SEBI pursuant to the Circular has amended the Master Circular for issue and listing of nonconvertible securities, securitized debt instruments, security receipts, municipal debt securities and commercial paper dated May 22, 2024 ("SEBI NCS Master Circular") to provide an option to the issuers to issue debt securities and NCRPSs with a reduced denomination of INR 10,000 (Indian Rupees Ten Thousand) subject to: (i) the appointment of a merchant banker; and (ii) the securities being plain vanilla instruments, i.e., with fixed maturities and coupon/dividend, without any structured obligations.
- This comes in the backdrop of the consultation paper issued by SEBI dated December 9, 20234 ("Consultation Paper")where a reduction in the denomination of listed debt securities and NCRPSs, issued on a private placement basis, from INR 1,00,000 (Indian Rupees One Lakh) to INR 10,000 (Indian Rupees Ten Thousand) on per security basis was proposed by the stakeholders. This was aimed to enable increased participation by non-institutional investors. Higher face value and trading lots act as entry barriers for non-institutional investors from entering the corporate bond market.
- Pursuant to the said Circular, such debt securities and NCRPSs (with a reduced nominal value) are now permitted to be credit enhanced, subject to credit rating agencies verifying the specified support considerations.
- Additionally, the SEBI has also clarified that in relation to the issuances carried out by way of shelf placement memorandum ("SPM") or general information document ("GID") may continue to be utilized by way of issuance of tranche placement memorandum or key information memorandum ("KID") at reduced face values with necessary addendums to such SPMs or GIDs, as applicable. Such issuances will remain subject to the appointment of at least 1 (one) merchant banker to carry out due diligence in respect of such issuances.
2. KEY TAKEAWAYS
Several proposals approved by SEBI pursuant to the Circular and the Board Meeting are aligned with the recommendations made by various stakeholders (including IndusLaw), in industry body representations as well as by way of comments and feedback to the Consultation Paper issued by the SEBI.
The aforesaid initiatives are likely to result in faster access to public funds for issuers and general ease of doing investments in India. These changes are expected to result in greater retail and non-institutional participation in the domestic capital markets by eliminating entry barriers, providing issuers with cheaper funding options and ensuring a general ease of doing business at large.
Footnotes
1 Available at: https://www.sebi.gov.in/media-and-notifications/press-releases/jun-2024/sebi-board-meeting_84448.html
3 The term specified securities has been defined under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 as: ""specified securities" means equity shares and convertible securities"
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