The proposed merger of SEBI (Issue & Listing of Debt Securities) Regulations, 2008 (ILDS Regulations) and SEBI (Issue & Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (NCRPS Regulations) into SEBI (Issue & Listing of Non-Convertible Securities) Regulations, 2021 is aimed at achieving certain preset objectives like:
Accordingly, the NCS Regulations have undertaken certain technical changes, some which can be described as follows:
1. Minimum Subscription
The existing ILDS Regulations through a circular require a minimum subscription of 75% to be achieved in case of public issue of debt securities. The NCS Regulations propose to include the same requirement for public issues of debt securities & NCRPS as well.
2. Continuous listing obligations
NCS Regulations propose to remove regulations 23 (2), (3) and (4) of ILDS Regulations requires disclosure of revision of rating and disclosure on websites which are in the nature of continuous listing conditions already prescribed in the LODR Regulations.
3. Disclosure of Cash Flow
The disclosure of cash flows in the offer document, presently prescribed for debt securities, to be made applicable for NCRPS as well under NCS Regulations. The same will enable investors to get an idea on actual date of future dividend and redemption payment.
4. Recovery Expense Fund
The NCS Regulations shall include the provisions obligating issuers of debt securities for creation of recovery expense fund.
5. Issue Advertisements
The NCS Regulations are to incorporate requirements similar to those as stated in ICDR Regulations containing detailed provisions on issue related advertisements which are comprehensive, including restrictions on use of models, soliciting investments and product advertisements.
6. Synchronizing Charge Creation
Companies Act states that the issuer shall have the option to create over the properties or assets (movable, immovable, tangible, intangible), shares or any interest thereon, of the issuer or its subsidiaries or its holding companies or its associate companies. The Companies (Share Capital and Debentures) Rules, 2014 require creation of charge on assets or properties which is sufficient for the due repayment of the amount of debt securities and interest thereon. The NCS Regulations have aligned the requirement for creation of charge on the assets and properties of the issuer under it with the aforementioned requisites.
7. Consolidation & Reissuances of Debt Securities
The provisions under ILDS Regulations for consolidation of debt securities & reissuances of debt securities under existing ISIN are available for privately placed debt securities only. The same is proposed to be extended to debt securities issued on public issue basis under the NCS Regulations.
8. Harmonizing allotment period
Regulation 12A of ILDS Regulation provides that in case of listing of debt securities issued to public, allotment of securities offered to public shall be made within thirty days of the closure of the public issue. However, SEBI vide Circular dated August 16, 2018 has mandated that the allotment of debt securities, NCRPS issued to public shall be made within six working days from the closure of the issue. Hence this provision regarding allotment within thirty days in the ILDS regulation is being deleted.
9. Allotment for oversubscription
It is mandatory to make allotments as on the date of oversubscription, to the applicants on a proportionate basis. However, such proportionate allotment is made only for those bids received on the date of oversubscription. The NCS Regulations propose to clarify through the operational circular that the allotment on the proportionate basis shall be made from the date of the oversubscription till the date issue remains open.
10. Definition for Debt Securities
In order to differentiate perpetual debt instruments from debt securities, the definition of debt securities has been modified as below to include fixed maturity period: ‘debt securities’ means non-convertible debt securities with a fixed maturity period which create or acknowledge indebtedness and includes, debentures, bonds or any other security whether constituting a charge on the assets/properties or not, but excludes security receipts, securitized debt instruments, money market instruments regulated by Reserve Bank of India, and bonds issued by Government or such other bodies as may be specified by the Board;
11. Fee for filing exemption application
It is proposed to introduce a fee of Rs.1 lac for filing exemption application from strict enforcement of certain provisions under NCS Regulations in line with other regulations such as ICDR Regulations and LODR Regulations.
12. Provision of e-voting
The NCS Regulations propose inclusion of the provision of e-voting may be included in addition to postal ballot in order to help issuers aiming to roll over debt securities, experience ease to obtain voting for passing the resolution.
13. Tax & Material Litigation
Schedule I of ILDS Regulation and NCRPS Regulation requires disclosure of tax litigation resulting in material liabilities. Disclosure of all litigation being material are important (whether tax or non-tax) for investor decision to invest. Hence it is proposed to modify the tax litigation to material litigation.
14. Disclosure by Debenture Trustee
Regulation 23(5) of ILDS Regulations & SEBI Circular dated November 12, 2020, require & mandate the Debenture Trustee to make certain disclosures regarding default by issuer, failure to create charge and revision of rating. These provisions are proposed to be deleted from ILDS Regulations and moved to DT Regulations.
15. Listing Restrictions
The NCS Regulations propose to impose restrictions on issuers with debarred promoter, director, promoter group or the issuer himself, from listing non-convertible securities issued on private placement basis.
16. Restricted public issue of NCRPS
The NCS regulations propose to restrict issuers from making public issues of NCRPS in case the issuer has defaulted in making dividend payments or has not cured such default. Presently, such restrictions from making public issue of NCRPS are imposed only on issuers defaulting in payment of interest.
17. Mandated Appointment of Debenture Trustee
It is proposed to mandate the appointment of a debenture trustee for private placement of debt securities proposed to be listed on similar lines with public issuance of debt securities as provided under the ILDS Regulations. The same happens as while there is no explicit requirement for the appointment of debenture trustee for a private placement of debt securities, certain requirements are mandated to be complied by debenture trustee in case of listed debt securities, whether issued on a private or public basis leading to debenture trustees being appointed for private placements also.
18. Restriction on fugitive economic offenders
Fugitive economic offenders are restricted from accessing securities markets during the period of debarment. The same is provided for under the ICDR Regulations & SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 2011 (“Takeover Regulations”). It is proposed to include such this restriction in the NCS Regulations to prevent such fugitive economic offenders from accessing the securities market in any manner.