Brief Overview:
The Securities and Exchange Board of India (“SEBI”) in its latest board meeting on December 18, 2024, has approved significant change to the market ecosystem which were earlier proposed through various consultation papers.
Technical Details:
A brief overview of approved changes is provided below: –
1) High Value Debt Listed Entities (“HVDLE”): –
(a) Threshold: – With a view to narrow the subset of HVDLEs and to place effective compliance burden, the threshold for identification of HVDLEs is increased from INR 500 Crores to INR 1000 Crores.
(b) Corporate Governance: – To enhance corporate governance in HVDLEs, corporate governance norms for HVDLEs along with a sunset clause will be incorporated in SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015 (“LODR Regulations”).
(c) Computation of cap on number of directorships: – Directorships in HVDLEs will be included in computing the cap on number of directorships, membership and chairpersonship in listed entities.
2) Securitised Debt Instruments (“SDIs”)
(a) Listed and to be listed SDIs will be issued in demat form.
(b) SDIs will have a minimum ticket size of INR 1 Crore only for Reserve Bank of India (“RBI”) regulated entities at initial subscription, and for non-RBI regulated entities at both initial subscription and subsequent transfers. Minimum ticket size for SDIs backed by listed securities shall be the face value among such listed security, for both initial subscription and subsequent transfers.
(c) Definition of debt and receivables will be revised for more detailed interpretation of what can be securitised.
(d) No single obligor will constitute more than 25% of asset pool being securitized, and asset pool must be homogenous in nature.
(e) To securitize debt / receivables, non-RBI regulated Originators and Obligors to have a track record of three financial years in the type of receivable/debt they intend to securitize.
(f) To align with RBI Directions, SEBI shall introduce Minimum Retention Requirement (MRR), Minimum Holding Period (MHP), clean-up call option, liquidity facility and advertisement for SDIs.
3) Standardization of model Debenture Trust deed (“DTD”): SEBI in consultation with Industry Standard Forum will come up with standardized model format for DTD.
4) Registered entities to hive off nonregulated activities: Registered Entities such as Merchant Banker, Custodian and Debenture Trustee are required to hive off activities other than the activities permitted under their respective SEBI regulations to a separate legal entity with separate brand name.
5) Categories of Merchant Bankers (MBs): SEBI has categorised Merchant Bankers to place greater net worth requirements for MBs involved in equity issue on main board. There shall be two categories of MBs: –
(a) Category 1: MBs having net worth of INR 50 Crores or more and allowed to undertake all permitted activities.
(b) Category 2: MBs having net worth of not less than INR 10 Crores are allowed to undertake all permitted activities except for equity issues on main board.
Revenue requirements are to be maintained by both categories of MBs with an exemption for MBs managing only the issue of listed / to be listed debt and hybrid.
6) Deployment of fund by mutual funds: SEBI will specify timelines for deployment of funds collected by mutual funds in new fund offers.
7) Payment of Interest & Redemption: SEBI intends to make any payment of dividend or interest or redemption or repayment by a listed entity to its security holders in electronic form only. SEBI will make the electronic payments mandatory, post advocating for the same for a required time period.
8) Aligning definition of UPSI with LODR: Definition of Unpublished Price Sensitive Information (“UPSI”) under SEBI (Prohibition of Insider Trading) Regulations, 2015 will be amended to include illustrative list of material events provided under LODR Regulations.
JC Takeaway:
The approved changes are another step in SEBI’s effort to have pro-active and transparent regulatory framework, as much of the changes approved were earlier consulted upon with market participants, by way of consultation papers.
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