SEBI in order to abide by the announcement made by the Government of India in Union Budget for 2018-19, wherein SEBI was casted with the responsibility to promote fund raising from the debt markets. Therefore, in line with the same, SEBI has come out with the framework for the “Large Corporates” to meet their 1/4th of their financing needs mandatorily from the debt market.
This move by SEBI has been introduced with the rationale to reduce the dependence of corporates on Banks to finance their funding requirements. Also, this will provide liquidity to financial institutions (“Lenders”) and thus will develop a vibrant corporate bond market.
The said circular shall operate as follows:
I. APPLICABLE TO “LARGE CORPORATE”
The “Large Corporate (LC)” means any listed entity, which fulfills all the criteria, as mentioned below, as on the end of FY i.e, as on March 31, 2019/ December 31, 2019:
| CRITERIA I | Equity Shares/ Debenture/ Preference Share of the entity are listed on the stock exchange(s) in terms of Listing Regulations, 2015; and |
| CRITERIA II | Long Term Borrowing >= Rs. 100 crores; and |
| CRITERIA III | Credit Rating of “AA and above” assigned by an unsupported bank borrowing or plain vanilla bonds |
II. MINIMUM DEBT FUNDING
- Minimum 25% of the long terms borrowings during the FY (Incremental borrowings) are to be raised by way of issuance of Debt Securities;
- Such debt securities will be issued and listed in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008
“Incremental borrowings” have been defined as any borrowing done during a particular financial year, of original maturity of more than 1 year, irrespective of whether such borrowing is for refinancing/repayment of existing debt or otherwise and shall exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies).
| Particulars | FY 2019- 20 | FY 2020- 21 | FY 2021- 22 and onwards |
| Effective Date | If identified as LC as on March 31 2019 | If identified as LC as on March 31 2020 | If identified as LC as on March 31 2021 |
| Incremental Borrowing to be financed through debt securities | 25% of total long term borrowings during the FY 2019-20 | 25% of total long term borrowings during the FY 2020-21 | 25% of total long term borrowings during the FY 2021-22 |
| Compliance Timeframe | Annually i.e., incremental debt securities to be issued by March 31, 2020 |
Annually i.e., incremental debt securities to be issued by March 31, 2021 |
Over Block of 2 years i.e., incremental debt securities to be issued by March 31, 2023 and likewise. |
III. DISCLOSURE REQUIREMENTS TO THE EXCHANGE(S)
| Stage of Disclosure | Pertaining to | Timeline | Remarks |
| Stage I- Beginning of the FY |
Identification as LC as on April 1 of FY | Within 30 days from the beginning of FY |
|
| Stage II- End of the FY |
Incremental Borrowings done during the FY | Within 45 days from the end of FY |
IV. PENALTY
| Particulars | FY 2019- 20 | FY 2020- 21 | FY 2021- 22 and onwards |
| Non- compliance/ Shortfall | Reasons to be provided to the Stock Exchange(s) | Reasons to be provided to the Stock Exchange(s) | Fine @ 0.2% of the shortfall in the borrowed amount to be paid to the stock exchange(s), to be further deposited in SEBI IPEF Fund. |
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SEBI’s mandate for meeting the funding requirements by corporates by way of issuance of debt securities will help in boosting economy’s stability and dependence merely on Banking channels. Even varied investors are interested in investing in listed NCDs. This fact can well be assimilated from the fact that during the current fiscal, already 249,630 crores worth of NCDs have been listed at the bourses. Listed NCDs offer many a benefits to both the Issuers as well as the Investors. |
- Any listed NCD issuance primarily involves following pertinent activities: Deciding upon the terms of issuance-tenure/ coupon rate/ payment frequency etc.
- Obtaining Credit Rating from at least one credit rating agency registered with the Board
- Appointment of Debenture Trustee;
- Obtaining Demat Connectivity;
- Prior approval of Stock Exchange(s);
- Shareholders’ Approval via Special Resolution;
- Electronic Book Mechanism for issue size of => Rs. 200 crore;
- Allotment in demat
- Obtaining Listing cum Trading Approval with the Stock Exchange(s)
- Upon listing, routine compliances under SEBI Listing Regulations
Click here for SEBI Circular (November 26, 2018)
V. HOW CAN WE HELP YOU?
We, at Corporate Professionals, assist the corporates in planning and structuring their issuance of debt securities, legal/ financial due diligence, Agreements/ Deeds Drafting, advising on listing related issues, representing and obtaining pre and post approvals and clearances from the Stock Exchanges/SEBI, and provide a back end support for undertaking complete corporate actions in a devised manner.
The Team follows a holistic approach in advising its clients and develops sound strategies. The Team has over the years have gained experience and expertise in handling diverse debt issuance and delivered successful results.
OUR SERVICES:
- Pre- Issue:
- Thorough pre issue health check-checking the financial/ compliance health of the Company and suitability of NCD issuance for the entity;
- Drafting of Information Memorandum/ Term Sheet/ Debenture Trustee Agreement/ Hypothecation Agreements etc;
- Stock Exchange(s) In Principle Approval;
- Depository Approvals
- During the issue:
- Acting as Arrangers for the Electronic Book Mechanism (EBP);
- Handling entire issue process;
- Listing Approvals
- Post issue:
- Retainership Services- Routine Compliances
- Event Based Compliances;
- Redemption/ Maturity Related Services;
In case of any query or clarification on the above matter, you may contact us at info@indiacp.com or 011-40622230