Sebi proposes to merge debt securities rules into one

The Securities and Exchange Board of India has invited the public to comment, open for 21 days, on the proposal.

To ease the compliance burden on listed entities, Sebi on Wednesday proposed merging the listing rules for debt securities and non-convertible redeemable preferred shares into a single settlement. The proposal aims to align with the Companies Act of 2013 and maintain consistency with Sebi’s LODR (Listing Obligations and Disclosure Requirements) rules and debenture trustee standards, the regulator said in a document. consultation. The Securities and Exchange Board of India (Sebi) invited public comment, open for 21 days, on the proposal.

As part of the proposal, Sebi suggested merging the issuance and listing standards for debt securities or ILDS and the regulations relating to the issuance and listing of non-convertible preferred shares or NCRPS into one. regulation – Issue and listing of non-convertible securities or NCS regulations. In the proposed NCS rules, the regulator suggested removing the minimum rating of AA- for the public issuance of NCRPS. Currently, NCRPS rules limit issuers with a credit rating below AA- to public issuance. Such restriction is not applicable even in other debt securities such as municipal debt securities and securitized debt securities.

In addition, it was suggested to remove the minimum three-year term requirement for public issuance of NCRPS, as it restricts the flexibility of issuers to structure their issuance according to their resource needs and raise funds. . Sebi suggested removing the restriction of four issues per year through a single shelf prospectus.

The ILDS regulation provides that no more than four issues may be made under a single shelf prospectus while there is no such restriction under the Companies Act. In order to maintain consistency, it was proposed that the validity of the shelving memorandum be revised to one year. The shelf prospectus in the event of a public issue is valid for up to one year, while the shelf prospectus issued in the case of a private placement is valid for 180 days.

It has been proposed to allow issuers to file a shelf prospectus provided that they have remedied the default at least 30 days before filing the draft shelf prospectus. Sebi proposed to remove the minimum size requirement, currently only applicable to debt securities. Also, he recommended replacing distributable income with operating income. It has been suggested that the e-book platform should be mandatory for the issuance of eligible securities offered to be listed for an amount of Rs 100 crore or more in a financial year.

In addition, it has been proposed that if the promoter, administrator, group of promoters or issuer has been excluded, that issuer should not be allowed to list non-convertible securities issued on a private placement basis. . In addition, it has been suggested that in the event that the issuer does not make the dividend payment, that issuer should not be allowed to publicly issue the NCRPS, until the dividend default is corrected. .

Under current NCRPS rules, an issuer that defaults on interest payments will not be permitted to issue publicly. However, in the event that the issuer is in default of payment of the dividend, that issuer is authorized to make public the issue of NCRPS. In addition, Sebi proposed to mandate the appointment of a trustee for bonds, even for private placements of debt securities. The regulator suggested the inclusion of a restriction on the access of fugitive economic offenders to securities markets under the NCS. However, the ILDS and NCRPS regulations do not contain such a restriction. In addition, the regulator proposed to insert several definitions, including green debt securities under the NCS, which are not present in the ILDS and NCRPS regulations.

The rules for ILDS and NCRPS were notified in June 2008 and June 2013, respectively. The ILDS regulation was promulgated for the issuance and listing of debt securities, while the NCRPS regulation was promulgated for the issuance and listing of non-convertible redeemable preferred shares. Considerable time has passed since the implementation of these two rules, Sebi said. In addition, various changes have taken place in the regulatory landscape, such as amendments to the Companies Act, the repeal of the Sebi regulations (issuance of capital and disclosure requirements), 2009 and the substitution by the ICDR rule, 2018. , Sebi noted.

They also include improving the requirements for bond trustees and issuing various circulars relating to ILDS and NCRPS rules with market dynamics in mind, he added. Current NCRPS rules also cover the listing of perpetual debt instruments (PDIs) and perpetual non-convertible preferred shares (PNCPS). While debt securities are pure play debt instruments, NCRPS are hybrid equity and debt instruments. They carry a fixed dividend rate and are redeemable, and the holder has the right to vote in the event that the dividend is not paid for two years in accordance with the Companies Act and, therefore, they are also qualified as “quasi-debt” instruments.

The NCRPS Rules were modeled on the ILDS Rules. The regulator said there was a need to merge and realign the ILDS and NCRPS regulations to ensure this ease of reference and language and also remove redundancies. The proposal will simplify and align the regulations with the various circulars and guidelines issued by Sebi and improve the structure of the regulations to improve readability, the regulator said. The proposed merger aims to identify policy changes in line with current market practices and the prevailing regulatory environment and to facilitate the conduct of business, he added.

In addition, it will separate the chapters according to the type of issue – public or private placement – and instruments – debt securities, commercial paper, so that all relevant information is sorted and available in one place.

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