Consolidated regulations titled the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”) have been introduced, which are an amalgamation of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (“ILDS Regulations”) and the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013. The NCS Regulations have been introduced pursuant to the consultation paper issued by Securities and Exchange Board of India (“SEBI”) on 19th May 2021 and shall come into effect from 16th August 2021.
1) Who are the NCS Regulations applicable to?
(a) Public issuances of inter alia non-convertible debt securities and non-convertible redeemable preference shares (“Non-Convertible Securities”);
(b) Private placements of Non-Convertible Securities; and
(c) Listing of commercial papers.
2) Key changes introduced in the NCS Regulations:
(a) Provisions for issuers existing since less than 3 years:
Issuers (other than unlisted Real Estate Investment Trusts and unlisted Infrastructure Investment Trusts) who have been in existence for less than 3 years have been permitted to issue and list their debt securities on a private placement basis subject to the following conditions:
(i) The issuer shall disclose its financial statements for such period of existence;
(ii) The issue is made on the electronic book platform, irrespective of the issue size; and
(iii) The issue is made to qualified institutional buyers only.
(b) Eligibility Criteria:
The NCS Regulations have introduced eligibility criteria for private placement of Non-Convertible Securities. These criteria include conditions such as an issuer being ineligible to issue privately placed Non-Convertible Securities if any fine or penalty imposed by SEBI, or a stock exchange is pending to be paid by the issuer at the time of filing of the offer document.
(c) Call and Put Options:
The ILDS Regulations provide certain conditions relating to exercise of put and call options for a public issuance, including a condition that such options could be exercisable only upon expiry of 24 months from date of issue of the instrument. The NCS Regulations have now made the criteria appliable to private placements of Non-Convertible Securities and has reduced the period for exercise of options (in public and private placement issuances) from 24 months to 12 months.
(d) Validity of a shelf placement memorandum:
The validity of a shelf placement memorandum (commonly known as a shelf disclosure document) for a private placement of debt securities has been increased from 180 days to 1 year.
(e) Disclosure of Risk Factors:
The NCS Regulations have prescribed certain parameters for identification and disclosure of risks in the offer document, such as: (i) risks in relation to the NCDs, (ii) risk in relation to the security created, (iii) refusal by stock exchange for listing of any security in the previous three years, etc.
(f) Rating and tenure for non-convertible redeemable preference shares (“NCRPS”):
(i) The minimum rating requirement of AA- for a public issuance of NCPRS has been done away with; and
(ii) The minimum tenure requirement of three years for a public issuance of NCRPS has been removed.
(g) Removal of cap on number of issuances under a single shelf prospectus:
The restriction of not more than four public issuances of debt securities in a year through a single shelf prospectus has been done away with.
SEBI has also issued an operational circular dated 10th August 2021 (“Operational Circular”) which provides a consolidated framework for the issue, listing and trading of Non-Convertible Securities, securitised debt instruments, security receipts, municipal debt securities and commercial papers. The Operational Circular shall come into effect from 16th August 2021 and shall repeal the underlying circulars which have been consolidated therein. The key changes under the Operational Circular are as follows:
1) Additional disclosures for non-banking financial companies (“NBFCs”) and housing finance companies (“HFCs”):
The Operational Circular provides for certain additional disclosures to be made byNBFCs and HFCs issuing debt securities on a private placement basis. These disclosures include details about lending done by the issuer out of issue proceeds of debt securities issued in previous 3 years, portfolio summary with regards to the sectors to which borrowings have been made, non-performing asset exposures in the previous 3 years, etc.
2) Electronic Book Platform (“EBP”):
The threshold for mandatory applicability of EBP for private placement issuances of debt securities has been reduced to Rs. 100 crores from the previous requirement of Rs. 200 crores. The threshold shall take into account:
(a) a single issue of debt securities, inclusive of green shoe option, if any, of Rs. 100 crores or more;
(b) a shelf issue, consisting of multiple tranches, which cumulatively amounts to Rs. 100 crores or more, in a financial year; and
(c) a subsequent issue, where aggregate of all previous issues by an issuer in a financial year, equals or exceeds Rs. 100 crores.
NCS Regulations: https://www.sebi.gov.in/legal/regulations/aug-2021/securities-and-exchange-board-of-india-issue-and-listing-of-non-convertible-securities-regulations-2021_51764.html
Operational Circular: https://www.sebi.gov.in/legal/circulars/aug-2021/operational-circular-for-issue-and-listing-of-non-convertible-securities-ncs-securitised-debt-instruments-sdi-security-receipts-sr-municipal-debt-securities-and-commercial-paper-cp-_51761.html