Vide notification no. SEBI/LAD-NRO/GN/2021/39 dated August 09, 2021, SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 [hereinafter referred to as the “SEBI NCS Regulations, 2021”] were notified, pursuant to merger and repeal of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 [hereinafter referred to as the “SEBI ILDS Regulations, 2008”] and SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 [hereinafter referred to as the “SEBI NCRPS Regulations, 2013”].
Further SEBI vide circular SEBI/HO/DDHS/P/CIR/2021/613 dated August 10, 2021 notified “Operational Circular for issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper” which provides chapter-wise framework for the issuance, listing and trading of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities or Commercial Paper [hereinafter referred to as “Operational Circular dated August 10, 2021”]
Salient features of SEBI NCS Regulations, 2021 are highlighted below:
1. These regulations shall apply to:
a. issuance and listing of “debt securities” and “non-convertible redeemable preference shares” by an issuer by way of public issuance.
b. issuance and listing of “non-convertible securities” by an issuer issued on private placement basis which are proposed to be listed; and
c. listing of commercial paper (CPs) issued by an issuer in compliance with the guidelines framed by the Reserve Bank of India.
[Regulation 3]
2. SEBI NCS Regulations, 2021 has made in-principle approval of the Stock Exchange(s) mandatory for listing of non-convertible securities, whether issues under public issue or on private placement basis. [Regulation 6]
3. Appointment of Debenture Trustee (DT) has been made mandatory for issuance of debt securities whether secured and unsecured debt securities. [Regulation 8]
4. The issuer shall appoint a Registrar to the Issue, registered with the Board, which has established connectivity with all the depositories [Regulation 9]
5. The issuer shall obtain credit rating from at least one credit rating agency, which shall be disclosed in the offer document. [Note: The requirement to have a minimum rating of AA- for a public issuance of (non-convertible redeemable preference shares) NCRPS has been done away with] [Regulation 10]
6. An issuer proposing to issue non-convertible securities through the on-line system of the stock exchange(s) and depositories shall comply with the relevant applicable requirements as may be specified by SEBI. [Regulation 12].
a. The following issues of securities shall be made through the EBP platform [Chapter VI of Operational Circular dated August 10, 2021]:
a) A private placement of debt securities and NCRPS proposed to be listed amounting to Rs 100 crores or more in a financial year. [Note: previously Rs. 200 crores]
b) Issues of debt securities and NCRPS on private placement basis, irrespective of issue size, by issuers who are in existence for less than three years, in accordance with Clause 2.3.8 c. of Schedule II to the SEBI NCS Regulations, 2021.
c) Issuance of PDIs, PNCPS, PCPS, RNCPS, and instruments of similar nature which are essentially non-equity regulatory instruments, forming part of a bank’s or NBFC’s capital, issued as per RBI stipulations and listed under Chapter V of the SEBI NCS Regulations, 2021, irrespective of the issue size
b. Issuers, who have made private placements of non-convertible securities and for whom accessing the EBP platform is not mandatory, shall upload details of such private placements as per format given at Annex – XV-A. The said information has to be uploaded with any one of the EBPs within one working day of allotment of securities. [Chapter XV of Operational Circular dated August 10, 2021]
7. The issuer and the debenture trustee shall execute the trust deed within such timelines as may be specified by the Board. [ Regulation 18] [Note: Applicable to both secured and unsecured securities]
8. Where the issuer has disclosed the intention to seek listing of debt securities and non-convertible redeemable preference shares issued on private placement basis, the issuer shall forward the listing application along with the disclosures as per this regulation to the stock exchange(s) within such days as may be specified by the Board from the date of closure of the issue. [Regulation 44(1)].
Further As per Chapter VII of Operational Circular dated August 10, 2021, Issuer to make listing application to stock exchange(s) and obtain listing permission from Stock Exchanges by T+4 working day (T day being Closure of issue).
9. Disclosure of Financial Information: Issuers desirous of issuing debt securities on private placement basis who are in existence for less than three years may provide Annual Reports pertaining to the years of existence. [proviso to Regulation 44(2)]
a. A columnar representation of the audited financial statements (i.e. Profit & Loss statement, Balance Sheet and Cash Flow statement) both on a standalone and consolidated basis for a period of three completed years which shall not be more than six months old from the date of the placement memorandum or issue opening date, as applicable
However, if the issuer being a listed REIT/listed InvIT has been in existence for a period less than three completed years and historical financial statements of such REIT/InvIT are not available for some portion or the entire portion of the reporting period of three years and interim period, then the combined financial statements need to be disclosed for the periods when such historical financial statements are not available [Clause 2.3.8 a. of Schedule II]
b. Issuers other than unlisted REITs / unlisted InvITs desirous of issuing debt securities on private placement basis and who are in existence for less than three years may disclose financial statements mentioned at (a) above for such period of existence, subject to the following conditions [Clause 2.3.8 c. of Schedule II]:
i. The issue is made on the EBP platform irrespective of the issue size; and
ii. The issue is open for subscription only to Qualified Institutional Buyers
10. Due Diligence from Debenture Trustee :
a. In case of public issue of Debt securities, the debenture trustee shall, at the time of filing the draft offer document with the stock exchange(s) and prior to opening of the public issue of debt securities, furnish to SEBI and stock exchange(s), due diligence certificate. [Regulation 40] [Note: Applicable to secured and unsecured debt securities]
b. In case of private placement of debt securities and non-convertible redeemable preference shares, Debenture trustee shall submit a due diligence certificate to the stock exchange. [Regulation 44(3)] [Note: Applicable to secured and unsecured debt securities and non-convertible redeemable preference shares]
11. In case of private placement of debt securities, the shelf placement memorandum shall indicate a period not exceeding one year as the period of validity of such memorandum which shall commence from the date of opening of the first offer of debt securities under that memorandum.[Regulation 47(2)]
[Note: as per Regulation 21A(2) SEBI ILDS Regulations, 2008, an issuer filing a Shelf Disclosure Document under sub-regulation (1), shall not be required to file disclosure document, while making subsequent private placement of debt securities for a period of 180 days from the date of filing of the shelf disclosure document]
12. Parameters for identification of risk factors have been introduced. [Clause 2.2.35 of Schedule II]
13. As per Chapter V of Operational Circular dated August 10, 2021, in case of Issuance of non-convertible securities:
i. The face value of each debt security or non-convertible redeemable preference share issued on private placement basis shall be Rs. 10 lakh.
ii. The face value of each security mentioned under Chapter V of SEBI NCS Regulations, 2021(i.e. Perpetual Debt Instruments and Perpetual Non- Cumulative Preference Shares) and Chapter 13 o operational circular (i.e. PDIs, PNCPS, PCPS, RNCPS, RCPS, debt instruments and instruments of similar nature) shall be Rs. 1 crore.
Further, in case of Trading of non-convertible securities:
i. The face value of the listed debt security and non-convertible redeemable preference share issued on private placement basis traded on a stock exchange or OTC basis shall be Rs. Ten lakh.
ii. The face value of listed security mentioned under Chapter V of SEBI NCS Regulations, 2021 (i.e. Perpetual Debt Instruments and Perpetual Non- Cumulative Preference Shares) and Chapter 13 of this operational circular (i.e. PDIs, PNCPS, PCPS, RNCPS, RCPS, debt instruments and instruments of similar nature) traded on a stock exchange or OTC basis shall be Rs. One crore.
iii. The trading lot shall always be equal to face value.
14. As per Regulation 4(2)(e) of erstwhile SEBI NCRPS Regulations, 2013, in case of public issue of non-convertible redeemable preference shares the minimum tenure of non-convertible redeemable preference shares shall not be less than three years. This requirement has been removed.
15. As per Regulation 4(2)(f) of erstwhile SEBI NCRPS Regulations, 2013 no issuer shall make a public issue of non-convertible redeemable preference shares unless the issue has been assigned a rating of not less than “AA-” or equivalent by a credit rating agency. This requirement has been done away with.
16. As per Regulation 6A (4) of erstwhile SEBI ILDS Regulations, 2008, in case of Public Issue of debt securities, not more than four issuances to be made through a single shelf prospectus. This restriction has been done away with.
17. An issuer desirous of issuing green debt securities (Green Bonds) shall make the following additional disclosures as per Chapter IX of the Operational Circular dated August 10, 2021 in the offer document for public issues and private placements:
a. A statement on environmental objectives of the issue of green debt securities.
b. Brief details of decision-making process followed/ proposed for determining the eligibility of project(s) and/ or asset(s), for which the proceeds are being raised through issuance of green debt securities.
a) Process followed/ to be followed for determining how the project(s) and/ or asset(s) fit within the eligible green projects categories as defined under Regulation 2 (q) of NCS Regulations.
b) the criteria making the project(s) and/ or asset(s) eligible for using the green debt securities proceeds; and
c) environmental sustainability objectives of the proposed green investment.
c. Details of the system/ procedures to be employed for tracking the deployment of the proceeds of the issue.
d. Details of the project(s) and/ or asset(s) or areas where the issuer, proposes to utilise the proceeds of the issue of green debt securities, including towards refinancing of existing green project(s) and/ or asset(s), if any
e. Details of appointment of independent third party reviewer/ certifier for reviewing/ certifying the processes including project evaluation and selection criteria, project categories eligible for financing by green debt securities, etc.
18. An issuer desirous of issuing and listing structured debt securities/ market linked debt securities (MLD) should have a minimum net worth of at least Rs. 100 crores at the time of issue and shall make the following additional disclosures as per Chapter X of the Operational Circular dated August 10, 2021:
a. Credit rating by any registered CRAs shall bear a prefix ‘PP-MLD’ denoting Principal Protected Market Linked Debt securities followed by the standardized rating symbols for long/ short term debt securities on the lines specified in SEBI Circular dated June 15, 2011 and circular dated June 13, 2019 or as may be specified by SEBI.
b. A detailed scenario analysis/ valuation matrix showing value of the security under different market conditions such as rising, stable and falling market conditions shall be disclosed in a table along with a suitable graphic representation.
c. A risk factor shall be prominently displayed that such securities are subject to model risk, i.e., the securities are created on the basis of complex mathematical models involving multiple derivative exposures which may or may not be hedged and the actual behaviour of the securities selected for hedging may significantly differ from the returns predicted by the mathematical models
d. A risk factor shall be prominently displayed stating that in case of principal/ Capital Protected Market Linked Debt securities, the principal amount is subject to the credit risk of the issuer whereby the investor may or may not recover all or part of the funds in case of default by the issuer
e. Where indicative returns/ interest rates are mentioned in the offer document in percentage terms, such figures shall be shown only on annualized basis
f. It shall be disclosed therein that the latest and historical valuation for such securities shall be made available on the websites of the issuer and of the valuer appointed for the purpose
g. All commissions by whatever name called, if any, paid by issuer to distributor for selling/ distribution of such securities to end investors shall be disclosed in the offer document
h. Conditions for premature redemption of such securities, if any, shall be clearly disclosed in the offer document.
Note: Please note that the above points are the summary of the NCS Regulations for reference purposes. The issuers are advised to refer and comply with the provisions of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 read with SEBI vide Operational Circular SEBI/HO/DDHS/P/CIR/2021/613 dated August 10, 2021.
In case of any clarification, Companies may please write to us on Debt.listing@bseindia.com
Rupal Khandelwal
Assistant General Manager
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