The Reserve Bank of India (RBI) on Tuesday came up with draft guidelines for the issuance of non-convertible debentures (NCDs) of maturity less than one year. It states that the NCDs, a debt instrument through which companies raise capital, shall not be issued for maturities of less than 90 days from the issuance date and the minimum denomination has been fixed at Rs 5 lakh.
On the eligibility criterion of the issuer, RBI has fixed Rs 4 crore, as per the latest audited balance sheet, as the tangible net worth of any corporate willing to issue such NCDs.
?The exercise date of put or call option attached to the NCDs shall not fall within the 90-day period from the date of issue. The maturity date of the NCD shall co-terminate with the date up to which the credit rating of the issuer is valid,? the central bank said.
NCDs may be issued in denominations of Rs 5 lakh or multiples thereof. The amount invested by a single investor should not be less than Rs 5 lakh as the face value. NCDs shall be issued at face value and will carry a coupon rate as determined by the issuer.
Corporates having sanctioned working capital limit by banks or all-India financial institutions and borrowal account of the company classified as a standard asset by the financing bank or institution will also be allowed to participate in the same.
NCDs may be issued to and held by individuals, banking companies, primary dealers other corporate bodies registered or incorporated in India and unincorporated bodies, non-resident Indians and foreign institutional investors, the RBI said.
Investments by the foreign institutional investors shall be within the limits set for their investments by the Securities & Exchange Board of India (Sebi).
?While option is available to both issuers and subscribers to issue or hold NCDs in dematerialised or physical form, issuers and subscribers should be encouraged to issue or hold NCDs in dematerialised form. However, banks, FIs and PDs are required to make fresh investments in NCDs only in dematerialised form,? the RBI added.
An eligible corporate intending to issue NCDs shall obtain credit rating from any agencies like Crisil, Icra, CARE, Fitch or such other peers as may be specified by the RBI from time to time. The minimum credit rating shall be P-2 from Crisil or such equivalent rating by other agencies. The issuers shall ensure at the time of issuance that the rating so obtained is current and has not fallen due for review.
The aggregate amount of the NCDs from an issuer shall be within the limit as approved by the board of directors of the corporate or the quantum indicated by the credit rating agency for the specified rating, whichever is lower.
?The total amount of the NCDs proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription,? the RBI said.
The issuer shall disclose to the prospective investors its financial position as per the standard market practice. The debentures shall be allotted in the form of letter of allotment, followed by Debenture Certificate, within the time frame prescribed by the Companies Act, 1956.
Every issuer shall appoint a debenture trustee for each issuance of the NCDs. Only commercial banks that are registered as debenture trustees with the Sebi shall be eligible to act as debenture trustees for issue of the NCDs.