The proposed NCS regulations are aimed at promoting of ‘Ease of Doing Business’ for the issuers of listed Debt Securities, Non-Convertible Redeemable Preference Shares (NCRPS), Perpetual Debt Instruments (PDIs) & Perpetual Non-Convertible Preference Shares (PCNPS) falling under its ambit. The amendments proposed to realize this objective can be classified as follows:
1. Parameters for identifying risk factors
While the existing SEBI (Issue & Listing of Debt Securities) Regulations, 2008 (ILDS Regulations) and SEBI (Issue & Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (NCRPS Regulations) require disclosure of risk factors but do not lay down any parameters for identifying the same. The NCS Regulations propose inclusion of provisions targeting comprehensive parameters for identification of risk factors such as risks intrinsic to the issuer, security, other risk factors which may have an impact on the issue, security, etc., as given under the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 (ICDR Regulations).
2. Rating & Tenure for NCRPS
An issuer is allowed to raise funds through the issuance of debt securities (includes municipal bonds, securitized debt instruments, etc.) irrespective of the credit rating. However, issuers are currently restricted under the existing NCRPS Regulations to raise any funds from public issue of NCRPS with a credit rating of less than AA-. Further, the regulations also require a minimum tenure of three years for public issue of NCRPS which further restricts the flexibility of the issuers to structure their issuance as per their resource requirement and raise funds through an issue of NCRPS. Considering the hindrance created in availing funds, this requirement is proposed to be discarded.
3. Shelf Prospectus & Shelf Placement Memorandum
A shelf prospectus as an offer document valid for securities issued to public in one or more tranches over a year, enables issuers to raise funds quickly without filing a separate prospectus each time. The ILDS Regulations provide that not more than four issuances can be made under a single shelf prospectus while there is no such restriction under the Companies Act. As the existing legislation already restricts the validity of a shelf prospectus to one year, it is proposed to remove the restrictions with respect to the number issuances available under shelf prospectus. Likewise, in case of Shelf Placement Memorandum (i.e. Shelf Disclosure Document) issued in case of private placement, it is proposed to increase the existing validity of 180 days to one year. One of the conditions for an issuer to be eligible to issue shelf prospectus is to have not defaulted in payment of interest/dividend/redemption amount in last three financial years. In this regards, it is proposed to allow issuers to file shelf prospectus provided they have cured the default at least 30 days prior to filing the draft shelf prospectus. It is also required of an Issuer to have consistently recorded distributable profits during the last 3 years before an issue in respect of which a shelf prospectus is to be filed. In order to provide a more measurable metric in line with ICDR Regulations, it has been proposed to replace the requirement of distributable profits with operating profits.
4. Call Option & Put Option
The existing ILDS Regulations outline the process to exercise call option & put option in case of debt securities issued to public only. The NCS regulations propose to extend the provisions to debt securities issued on private placement basis & NCRPS issued to public & on private placement basis. Further, the NCS also propose to reduce the period post which these options can be exercised to 12 months from the existing 24 months.
5. Physical Offer Document
ILDS Regulations require the issuer to & merchant banker to provide physical copy of offer document to any person who makes request of the same. Since the same can be accessed digitally by the investor through websites of issuer, merchant banker, SEBI, stock exchanges, etc. it has been proposed to discard this requirement in line with the ICDR Regulations.
6. Minimum Issue Size
The NCS Regulations propose to remove the existing requirement of minimum issue size of INR 100 Crore which is applicable for public issue of debt securities only. The same is being done as there is no such requirement for NCRPS, Securitized Debt Instruments (SDIs) or Municipal Debt Securities.
7. Abridged Prospectus
Considering the recommendations of the Corporate Bonds and Securitization Advisory Committee (CoBoSAC) to streamline the contents of the abridged prospectus in order to make it readable for investors and reduce the cost of issuance to issuers, the NCS Regulations have proposed a new abridged prospectus of around 10 pages and in font size 11, which will greatly enhance the readability. Presently, the abridged prospectus runs to around 50 pages and is printed on very small font size, which makes it difficult to read, vitiating its very purpose.
8. Application Form for NCRPS issued to public
The existing regulations prescribe a format for application form filed in respect of debt securities. However, there is no such prescription made for NCRPS. The NCS Regulations propose to prescribe the same on similar lines with the format existing for an issue of debt securities.
9. Electronic Book Provider (EBP) Platform
The CoBoSAC after considering the benefits of EBP platform & need for further participation from issuers & investors, recommended that the applicability of EBP platform for issuance of debt securities may be reduced to INR 100 crore or above in a financial year from the existing INR 200 Crore. Accordingly, the NCS Regulations propose to mandate the EBP platform for any issuance of eligible securities proposed to be listed amounting to INR 100 crore or above in a financial year. Further, it is also proposed to increase the present timeline for filing a placement memorandum on the EBP platform to five working days from the existing timeline of just two working days before the issue opening date.