Non-convertible debt securities: SEBI demands stricter disclosures for high-value listed companies



Market regulator SEBI has raised the bar on disclosure and corporate governance standards for companies that only rely on listing their largest debt issues, bringing them to practically the same level as the compliances already stipulated for the listing of shares by companies. However, many experts still believe that the latest measures, while well-intentioned, may still place a higher compliance burden on entities issuing high-value debt securities.

The latest set of measures – introduced as amendments to the Regulations on Registration and Disclosure Requirements (LODR) – has now extended some provisions that previously only applied only to listed entities to certain entities. listed in high value debt securities – those that have listed their non-convertible securities. Debt securities with an outstanding value of 500 crore and more – and have them “comply or explain” until March 31, 2023, after which compliance will be mandatory.

Simply put, what SEBI has now done is introduce disclosure requirements and governance standards for large entities that have or wish to list only their debt securities (non-convertible bonds) on stock exchanges and align them with disclosure standards applicable to entities that have listed their shares on stock exchanges.

LODR regulations

Aditya Bhargava, partner, Phoenix Legal, a law firm, said the intention of the changes to the LODR regulations appears to be to reduce possible regulatory arbitrations and expand some provisions that were previously only applicable to publicly traded entities to listed debt entities that meet a prescribed threshold.

“While laudable, this increases the burden of compliance, thereby increasing barriers to entry into debt capital markets, which seems somewhat contrary to the intention of government and regulators to deepen markets. loan capital.

“In addition, an appropriate ‘warning’ in the form of a consultation document for public comments and a prospective date of entry into force – similar to the NCS regulation of August 2021 – would have been appreciated by stakeholders.” , added Bhargava.

Sahil Arora, Partner, Saraf & Partners, a law firm, said the amplified disclosure obligations coupled with certain other stipulations that are almost on par with the compliances for stock listing would certainly impose a considerably greater compliance burden. raised to issuing entities.

While an extended timeframe towards compliance and a ‘comply or explain’ standard for an initial period are certainly welcome, it remains to be seen whether the proposed timeframes would be sufficient for companies to move on to these increased compliance obligations, a. he added.

SEBI had recently consolidated and liberalized the regulations on the listing of non-convertible securities to allow smaller and more frequent public issues of NCDs so that issuers can access the bond market in a timely manner. However, the regulator appears to have taken an approach to balance liberalization and greater access to the listed debt segment, with stronger corporate governance standards for larger debt issues, according to Arora.

SEBI regulations

Manshoor Nazki, Partner, IndusLaw, a law firm. said the latest amendments were mainly undertaken to align the provisions on non-convertible securities with the recently notified SEBI (Issue and Listing of Non-Convertible Securities) Regulation, 2021 which had repealed, and in a way merged, the SEBI (Issue and listing of debt securities) and SEBI regulations (issue and listing of redeemable non-convertible preferential shares).

Nazki also said that the latest LODR amendments also make some substantial changes such as the applicability of corporate governance standards to “high-value listed entities” (entities that have listed their non-convertible debt securities from a outstanding value of 500 crore and more).

There are also other changes to streamline disclosures and other procedural aspects. Even if SEBI’s goal behind these amendments is to make the bond market more “robust”, it will remain to be seen whether these amendments are sufficient to achieve this, Nazki added.

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