To ease compliance burden on listed entities, Sebi on Wednesday proposed merger of listing rules pertaining to debt securities and non-convertible redeemable preference shares into a single regulation. The proposal is aimed at harmonising with the Companies Act, 2013, and maintaining consistency with the Sebi’s LODR (Listing Obligations and Disclosure Requirements) rules and Debenture Trustees norms, the regulator said in a consultation paper. The Securities and Exchange Board of India (Sebi) has invited public comments, open for 21 days, on the proposal.
Under the proposal, Sebi has suggested merger of the Issue and Listing of Debt Securities or ILDS norms and the Issue and Listing of Non-Convertible Redeemable Preference Shares or NCRPS Regulations into a single regulation — Issue and Listing of Non-Convertible Securities or NCS Regulations. In the proposed NCS rules, the regulator has suggested removal of minimum rating of AA- for public issuance of NCRPS. Currently, NCRPS rules restricts issuers with credit rating of less than AA- to come out with a public issue. Such restriction is not applicable even in other debt instruments such as municipal debt securities and securitised debt instruments.
Also, it has been suggested to do away with the requirement of minimum tenure of three years for public issue of NCRPS, as it restricts the flexibility of the issuers to structure their issuance as per their resource requirement and raise funds. Sebi has suggested removal of restriction of four issuances in a year through a single shelf prospectus.
The ILDS Regulations provide that not more than four issuances can be made under a single shelf prospectus while there is no such restriction under the Companies Act. In order to maintain consistency, it has been proposed that the validity of shelf placement memorandum be revised to one year. The shelf prospectus in case of public issue is valid till one year, whereas the shelf placement memorandum issued in case of private placement is valid for 180 days.
It has been proposed to allow issuers to file shelf prospectus provided they have cured the default atleast 30 days prior to filing the draft shelf prospectus. Sebi has proposed that the requirement of minimum size, presently applicable only for debt securities should be removed. Also, it has recommended to replace distributable profit with operating profit. It has been suggested that the electronic book platform should be mandatory for issuance of eligible securities proposed to be listed amounting to Rs 100 crore or above in a fnancial year.
In addition, it has been proposed that if the promoter, director, promoter group or the issuer has been debarred, then such issuer should not be allowed to list non-convertible securities issued on private placement basis. Also, it has been suggested that in case issuer fails to make payment of dividend, then such issuer should not be allowed to make a public issue of NCRPS, till such time the default in payment of dividend is cure.
As per present NCRPS rules, the issuer who has defaulted in payment of interest will not be allowed to make public issue. However, in case issuer has defaulted in payment of dividend, then such issuer are allowed to make public issue of NCRPS. Further, Sebi has proposed to mandate the appointment of a debenture trustee even for private placements of debt securities. The regulator has suggested inclusion of restriction on fugitive economic offenders from accessing the securities markets in the NCS framework. However, ILDS and NCRPS Regulations do not contain such restriction. In addition, the regulator has proposed to insert several definitions including green debt securities in the NCS framework, which are not present in the ILDS and NCRPS Regulations.
The rules on ILDS and NCRPS were notified in June 2008 and June 2013, respectively. The ILDS Regulations were enacted for the issuance and listing of debt securities, whereas NCRPS Regulations was enacted for the issuance and listing of non-convertible redeemable preference shares. Subsequent to the implementation of the these two rules, considerable time has passed, Sebi said. In addition, various changes have taken place in the regulatory landscape, such as amendments to the Companies Act, repeal of the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2009, and substitution with ICDR rule, 2018, Sebi noted.
They also include enhancement of requirements for debenture trustees, and issue of various circulars in relation to the ILDS and NCRPS rules keeping in mind the market dynamics, it added. The current NCRPS rules also cover the listing of perpetual debt instruments (PDIs) and perpetual non-convertible preference shares (PNCPS). While debt securities are ‘pure play’ debt instruments, NCRPS’ are hybrid equity and debt instruments. They carry a fixed dividend rate as well as are redeemable, and the holder is entitled to voting rights in case dividend is not paid for two years as per the Companies Act and therefore, they are also termed as a ‘quasi-debt’ instruments.
The NCRPS Regulations have been modelled on the ILDS Regulations. The regulator said a need was felt to merge and realign the ILDS and NCRPS regulations to ensure that ease of reference and language and also remove redundancies. The proposal will simplify and align the regulations in line with the various circulars and guidance issued by Sebi and improve the structure of the regulations in order to enhance readability, the regulator said. The proposed merger is aimed at identifying policy changes in line with the present market practices and the prevailing regulatory environment and to ease doing business, it added.
In addition, it will separate the chapters on the basis of type of issuance — public or private placement — and instruments — debt securities, commercial papers, so that all relevant information is sorted and are available at one place.