1. INTRODUCTION
The Securities and Exchange Board of India (“SEBI”) introduced certain amendments to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations 2021 (“NCS Regulations”). This comes at a time where India has witnessed exponential growth in the issuance of listed non-convertible securities by companies looking to raise debt.
These changes include the implementation of a standardized record date timeline, which aims to ensure consistency and clarity for investors. Additionally, the reduction in face value of non-convertible securities is expected to improve market accessibility and liquidity. Furthermore, the incorporation of static quick response codes (“QR codes”) and web links for the disclosure of financial information, branch / unit details and advertisement for public issue represents a modern approach to investor communication, allowing for quicker access to crucial data.
These amendments mark a significant shift aimed at enhancing market efficiency, bolstering investor protection, and ensuring greater data privacy for promoters. These changes reflect SEBI’s commitment to modernizing regulations and to keep pace with evolving market dynamics and investor needs. These amendments introduce several pivotal changes aimed at modernizing the regulatory framework and enhancing the overall efficiency and transparency of the capital markets. These amendments also represent a strategic effort to enhance the functioning of the Indian bond market while prioritizing investor protection and operational efficiency.
This article explores these amendments, their potential impact on the market, and what they mean for investors and issuers alike.
2. ANALYSIS
(a) Standardised Record Date Timeline
In order to determine that a person is entitled to interest or repayment of principal on non-convertible debentures (“NCDs”) in a standardized manner for all issuances, SEBI has standardized the record date timeline across all issuances.
The issuers seeking to issue and list their NCDs are now required to adhere to the record date timeline of 15 (fifteen) days before the due date for the purpose of paying interest or repayment of principal on NCDs or any other corporate actions. This change in timeline will bring much required uniformity in terms of standardisation and fixation of record date across all issuances of listed debt securities in the Indian bond market.
SEBI also reduced the timeline for intimation of record date to stock exchanges for entity having listed non-convertible securities to at least 3 (three) working days from prior requirement of 7 (seven) working days.
(b) Disclosure of Financial Information and branch details
The issuers are now required to provide QR Codes or web-links in the offer document for the purpose of disclosing the audited financial statements for the last three years. These audited financial statements will also be hosted on the website of stock exchanges. This amendment provides for digital presentation of financials statements and will simplify the disclosure of the financial information by the issuer in the offer document.
The issuers are also required to provide QR Codes or web-links in the offer document providing branch and / or unit details where the issuer carries out its business activities.
(c) Reduction in Face Value
SEBI, in furtherance of its intention to enhance liquidity in the non-convertible securities and make non-convertible securities more accessible to the debt market have lowered the ticket size of debt securities and has therefore, provided an alternative to the issuers to list their non-convertible securities in denomination of INR 10,000/- (Indian Rupees Ten Thousand Only) instead of INR 1,00,000/- (Indian Rupees One Lakh Only) in order to boost retain participation in the Indian bond market.
Such issuance is subject to following conditions:
- mandatory appointment of at least one merchant banker; and
- the debt instrument must be interest bearing paying interest at regular intervals with a fixed maturity.
This reduction is aimed to enhance participation of non-institutional investors mainly retail investors in the Indian bond market while safeguarding the interest of such investors, to issue NCDs or Non-Convertible Redeemable Preference Shares (“NCRPS”) through private placement mode at a lower face value. Such NCDs and NCRPS shall be plain vanilla, interest/dividend bearing instruments. However, credit enhancements shall be permitted in such instruments.
(d) Disclosure of Debenture Trustee Agreement (“DTA”) in Key Information Document (“KID”)
SEBI vide its recent board meeting has approved the proposal for disclosure of DTA in the KID, which shall be made accessible by way QR Code or web-link and a copy of the debenture trustee consent letter shall be disclosed as per of the general information document.
(e) Introduction of Liquid Window Facility
SEBI has introduced a mechanism for periodic buybacks called the Liquidity Window Facility (“LWF”) for investors to boost liquidity and retail participation in the secondary market for corporate bonds. Issuer offering LWF will have an option to specify whether such facility is to be provided to all investors or retail investors. Investor availing LWF shall hold such debt securities in demat form.
LWF to be provided at the discretion of issuer on a specific international securities identification number (“ISIN”) to eligible investors at the time of issuance. Issuer needs to specify in the offer document, a minimum of 10% (ten percent) of the total issue size must be allotted to the liquidity window. This liquidity window will be open for 3 (three) working days and can be scheduled monthly and / or quarterly on a stock exchange as designated by the Issuer. Issuers can offer LWF only after the expiry of 1 (one) year from the date of issuance of debt securities.
This facility aims to encourage more retail investors to participate in the bond market by offering greater flexibility in managing their investments and will provide an option to the investors to utilize the put option to sell the securities and maintain liquidity in the market.
(f) Stricter norms for signing and liability of an offer document
- requirement of minimum two signatories to sign offer document;
- contents of the document have to be perused by the board of directors; and
- the final and ultimate responsibility of the contents mentioned in the offer document shall also lie with the board of directors of the issuer.
Stricter norms regarding the signing and liability of offer documents reinforce accountability, ensuring that the integrity of information shared with investors is upheld.
(g) Enhanced Data Privacy
SEBI in the recent amendment to the NCS Regulations removed the requirement for disclosure of permanent account number and personal address of the promoter of the issuer. This step is considered as a balanced approach for fostering both privacy and transparency.
(h) Relaxation in limits of ISIN
SEBI has relaxed the requirement of limits on maximum number of ISINs for issuers desirous of listing originally unlisted ISINs.
(i) Relaxed Timelines
SEBI vide its recent board meeting has approved the proposal for relaxation in the timelines for disclosure of material litigation or disputes against the listed entity and disclosure about the conclusion of board meeting.
(j) Advertisement through electronic mode for public issues
SEBI in the recent amendment to the NCS Regulations has provided issuer an option to advertise public issue in electronic mode by providing a QR Code & or web-links, redirecting to the complete advertisement.
(3) KEY TAKEAWAYS
With India being at the epicenter for foreign debt investment and with its bond market rapidly growing, the need for further regulation to ensure transparency and to safeguard the interests of prospective investors is pertinent.
These amendments are poised to have a positive impact on investors. The standardized record date timeline will enhance clarity and predictability, enabling investors to better plan their transactions and stay informed about their holdings. The step towards lowering the ticket size of debt securities is with a view to encourage more non-institutional investors to participate in the Indian bond markets and this in turn will lead to a wider investor pool and therefore may also enhance liquidity in the Indian bond markets. However, this may result in much more stringent due diligence requirements due to a mandatory appointment of merchant banker by the issuer. Additionally, the use of QR codes for financial disclosures will facilitate quicker and easier access to vital information, empowering investors to make more informed decisions. Overall, these changes aim to promote transparency, accessibility, and efficiency in the securities market.
The relaxation in disclosure requirements for promoters is expected to enhance privacy for promoters while still maintaining transparency. The amendment on inclusion of QR Codes and web-links in the offer document seeks to provide for modern and efficient digitised technology intensive mechanism for disclosure of the financial results of debt listed entities. The requirement of obtaining prior approval from the debenture trustee on the disclosure requirement in offer documents aims to enhance accountability of the debenture trustee, protect investors interest, and increase transparency in the Indian bonds market. These amendments aim to simplify the process of disclosures which are required to be made by the issuers and also enhance clarity and make the environment more investor friendly.
By addressing key areas such as liquidity window, compliance timelines, data privacy, digital communication, and accountability, SEBI aims to foster a regulatory framework that supports growth while protecting the interests of all market participants. These changes not only reflect a commitment to modernization but also an understanding of the needs of a dynamic and evolving financial landscape.
Collectively, these amendments not only streamline processes but also build a more transparent and trustworthy bond market, ultimately supporting sustainable growth and encouraging greater investor confidence. These amendments signify SEBI’s commitment in creating a more robust and investor-friendly bond market landscape.
