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FCS Vinita Nair Vinod Kothari Company
Kolkata:1006-1009, Krishna224 AJC Bose RoadKolkata – 700 017Phone: 033 2281 3742/7715Email: [email protected]
New Delhi:A-467, First Floor, Defence Colony, New Delhi-110024Phone: 011 41315340Email: [email protected]
Mumbai:403-406, Shreyas Chambers175, D N Road, FortMumbaiPhone: 022 2261 4021/ 6237 0959Email: [email protected]
Website: www.vinodkothari.com
Corporate Bonds and Debentures
1
Copyright & Disclaimer
This presentation is only for academic purposes; this is not intended to be a professional advice or opinion. Anyone relying on this does so at one’s own discretion. Please do consult your professional consultant for any matter covered by this presentation.
The contents of the presentation are intended solely for the use of the client to whom the same is marked by us.
No circulation, publication, or unauthorised use of the presentation in any form is allowed, except with our prior written permission.
No part of this presentation is intended to be solicitation of professional assignment.
2
About Us
Vinod Kothari and Company, company secretaries, is a firm with over 30 years of vintage
Based out of Kolkata, New Delhi & Mumbai
We are a team of qualified company secretaries, chartered accountants, lawyers and managers.
Our Organization’s Credo:
Focus on capabilities; opportunities follow
3
4
Law & Practice relating to Corporate Bonds & Debentures
The book can be ordered by clicking here
Outline
Introduction to Debentures
State of Indian Bond Market
Comparison of debentures with other forms of borrowings/securities
Types of Debentures
Modes of Issuance & Regulatory Framework
Private placement v/s public issue
Recent amendments
Continual Compliances under SEBI Regulations and Circulars
5
Introduction to Debentures
6
Definition
Companies Act, 1956 defined “debenture” as –▫ “debenture” "debenture" includes debenture stock,
bonds and any other securities of a company, whetherconstituting a charge on the assets of the company ornot.
Companies Act, 2013 defines “debenture” as-▫ "Debenture" includes debenture stock, bonds or any
other instrument of a company evidencing a debt,whether constituting a charge on the assets of thecompany or not;
▫ Provided that—• the instruments referred to in Chapter III-D of the
Reserve Bank of India Act, 1934; and• such other instrument, as may be prescribed by the
Central Government in consultation with theReserve Bank of India, issued by a company,
shall not be treated as debenture.
SEBI (ILDS) Regulations, 2008▫ “debt securities” means non-convertible debt
securities which create or acknowledge indebtednessand includes debentures, bonds and such othersecurities of a body corporate or a Trust registered withthe Board as a Real Estate Investment Trust or anInfrastructure Investment Trust, or any statutory bodyconstituted by virtue of a legislation, whetherconstituting a charge on the assets of the bodycorporate or not, but excludes bonds issued byGovernment or such other bodies as may be specified bythe Board, security receipts and securitized debtinstruments;
7
State of Indian Bond Market
8
Private Placement of Debentures
9
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Issue Size 218785.41 261282.65 361462 276054.18 404136.5 458073.48 640715.51 599147.08 610317.61 674702.88 631825
0
100000
200000
300000
400000
500000
600000
700000
800000
Am
ount
(Rs. C
rore
s)
Financial Year Source: SEBI last visited on 22-02-2021
10
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
NSE 153370.26 189803.32 206187.25 140713.04 169726.02 206676.33 219720.60 170834.70 177592.70 203066.26 168278.00
BSE 52590.53 56974.22 72473.84 78805.14 117949.38 152281.15 254212.71 23461.68 247450.89 254976.40 223618.00
Both 12824.63 261282.65 82800.91 56536 116461.1 99116 166782.2 193697.7 185274.02 216660.39 239929
0.00
50000.00
100000.00
150000.00
200000.00
250000.00
300000.00
Am
ount
in C
rore
s
Financial Year
Split between listed on BSE, NSE and Both
NSE BSE BothSource: SEBI last visited on 22-02-2021
Public Issue of Debentures
11
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Issue Size 9451.17 35610.71 16982.05 42382.97 9713.43 33811.92 29547.15 4953.05 36679.36 14984.02 9118.65
9451.17
35610.71
16982.05
42382.97
9713.43
33811.92
29547.15
4953.05
36679.36
14984.02
9118.65
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Am
ount
In C
rore
s
Financial Year Source: SEBI last visited on 22-02-2021
Outstanding corporate bonds
12
2017-
18(Q3)
2017-
18(Q4)
2018-
19(Q1)
2018-
19(Q2)
2018-19
(Q3)
2018-19
(Q4)
2019-20
(Q1)
2019-20
(Q2)
2019-20
(Q3)
2019-
20(Q4)
2020-21
(Q4)
Outstanding Instruments 2647034.00 2742259.07 2837683.00 2838211.33 2948165.00 3067228.19 3063397.28 3087798.84 3144306.31 3253921.59 3322506.75
0.00
500000.00
1000000.00
1500000.00
2000000.00
2500000.00
3000000.00
3500000.00
Net
outs
tandin
g am
ount
(Rs. in c
rore
)
Financial Year
Source: SEBI last visited on 22-02-2021
Issuers in Bond market
13
Issuers in Corporate Bond Market
Corporates Banks and Financial
Institutions Public Sector Units
(PSUs)Local Bodies
Large Corporate Borrower (LCB) frameworkSEBI circular Nov 26, 2018
Eligibility criteria for classification as LCB:
▫ Listed specified securities or debt securities or NCRPS; and
▫ Outstanding long term borrowing of more than INR 100 crores; and
▫ Borrowing with original maturity of more than 1 year,
▫ excluding ECBs and inter-corporate borrowings between parent and subsidiary(ies)
▫ Minimum credit rating of AA for unsupported bank borrowing or plain vanilla bonds.
▫ Facility with no structuring/ support built in.
▫ In case of multiple rating agencies, highest of the rating to be considered.
Minimum 25% of incremental borrowing to be met by issuance of debt securities.
"incremental borrowings" shall mean any borrowing done during a particular financial year, of original maturity of more than 1 year, irrespective of whether suchborrowing is for refinancing/repayment of existing debt or otherwise and shall exclude ECB and inter-corporate borrowings between a parent and subsidiary(ies).
Effective from April 1, 2019.
▫ During FY 2020 and FY 2021 – explanation for shortfall to be given, in case unable.
▫ From FY 2022 onwards mandatory requirement to be met over a continuous block of two years.
▫ a listed entity identified as a LC, as on last day of FY "T-1", shall have to fulfil the requirement of incremental borrowing for FY "T", over FY "T" and "T+1“
▫ In case of shortfall, monetary penalty/fine of 0.2% of the shortfall in the borrowed amount shall be levied and the same shall be paid to the Stock Exchange(s).
14
No. of LCB for 2019-20 159
No. LCB that met the targetduring 2019-20
94
Amount raised 4.59 lakh
crore
Balance to meet shortfall during 2020-21
65
Investors in Bond Market
15Source: CRISIL Year Book
Mutual Funds20%
Insurance Companies22%
Employee Provident Fund Organisation
13%Exempted trusts
6%
National Pension Scheme
2%
Foreign Portfolio Investors
10%
Banks17%
Others (Corporates, high net-worth individual etc.)
10%
Share of different classes of Investors in Corporate Bonds [FY 2018]
Debentures v/s Bonds
Section 2(10A) of the Indian Stamp Act, 1899 defines“debentures” as –▫ "debenture" includes—
• Debenture stock, bonds or any otherinstrument of a company evidencing a debt,whether constituting a charge on the assets ofthe company or not;
• bonds in the nature of debenture issued byany incorporated company or body corporate;
• certificate of deposit, commercial usance bill,commercial paper and such other debtinstrument of original or initial maturity uptoone year as the Reserve Bank of India mayspecify from time to time;
• securitised debt instruments; and• any other debt instruments specified by the
Securities and Exchange Board of India fromtime to time.
Section 2(5) of the Indian Stamp Act, 1899 defines“bonds” as -
▫ “Bond” includes—• any instrument whereby a person obliges himself to
pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;
• any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and
• any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another:
but does not include a debenture;
16
Comparison with other forms of borrowing/ securities
17
Debenture v/s Commercial Paper▫ Nature▫ Issuance▫ Listing▫ Coupon▫ Creation of security interest▫ Tenure▫ Early redemption (call/ put).
Debenture v/s Preference Shares▫ Nature ▫ Issuance ▫ Listing▫ Return ▫ Creation of security interest ▫ Redemption
Debenture v/s Loans▫ Nature▫ Issuance▫ Listing▫ Transferability▫ Creation of security interest
Debenture v/s PTCs▫ Nature▫ Nature of investment▫ Listing▫ Creation of security interest
18
Applicability of provisions of CA, 2013 in case of loans availed v/s debentures issued
Section Section Heading Dealing with
44 Nature of share and debenture Debentures shall be movable property.
52 Application of premium received on issue of shares
Manner in which the securities premium account can be applied.
62(3) Further issue of share capital Increase of the subscribed capital of a company caused by the
exercise of an option as a term attached to the debentures issued or
loan raised.
62(4) Further issue of share capital Power with the government to direct conversion into shares, even if the terms are silent on the conversion option.
71 Debentures Conditions for issue of debentures
134(3)(g) Financial statement, board’s report, etc. Disclosure in boards' report on particulars of loans, guarantees or investment under section 186.
136(1)& (2)
Right of member to copies of audited financial statement
Manner of sending financial statements and every document required to be annexed or attached to financial statement, to every trustee for the debenture holders and providing the right to inspect.
177 (4) (v)
& (viii)Audit Committee Scrutiny of inter-corporate loans and investments;
Monitoring the end use of funds raised through public offers and related matters
19
Applicability of provisions of CA, 2013 in case of loans availed v/s debentures issued
Section Section Heading Dealing with
179(3)(c) Powers of board Exercise of powers by Board in a meeting w.r.t. issue of securities.
179(3)(d) Powers of board Exercise of powers by Board in a meeting w.r.t. to borrowing monies.
179(3)(f) Powers of board Exercise of powers by Board in a meeting w.r.t. to grant loans or give guarantee or provide security in respect of loans.
180(1)(c) Restrictions on powers of board Exercise of power to borrow monies with prior approval of shareholders where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium.
185 Loan to directors, etc. Restriction on advance any loan, including any loan represented by a
book debt to any person in whom any of the director of the company
is interested.
186(3) Loan and investment by company Limit on making of loans and investments.
186(7) Loan and investment by company Minimum interest to be charged on loan.
Debentures when not considered as deposit
20
Companies Act, 2013 defines “debenture” as-▫ "Deposits“ includes any receipt of money by way of deposit or loan or in any other form, by a company, but does
not include:▫ Amount raised by issue of secured or compulsorily convertible bond/debentures
• Secured by first charge or pari-passu with first charge on any assets referred to in Schedule III of the Act,2013 excluding intangible assets .
• Compulsorily convertible into shares within 10 years.▫ Amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and
listed on a recognised stock exchange as per applicable regulations made by SEBI.▫ Any amount received from foreign entities, subject to FEMA provisions.
▫ Provisions of the rules do not apply to Banking Company, NBFC registered with RBI and HFC registered with NHB.
21
Definition of deposit as per RBI Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016
“Public deposit” means a deposit as defined under section 45-I(bb) of the Reserve Bank of India Act, 1934 (2 of 1934), excluding the following: any amount raised by the issue of bonds or debentures
▫ secured by • mortgage of any immovable property of the company; or• by any other asset; or
◦ amount of such bonds or debentures shall not exceed the market value of such immovable property/other assets;
▫ compulsorily convertible into equity in the company. Any amount raised by issuance of NCDs with a maturity more than one year and having the minimum
subscription per investor at Rs.1 crore and above, and issued in accordance with the guidelines issued by the Bank as in force from time to time in respect of such non-convertible debentures.
any amount received as hybrid debt or subordinated debt the minimum maturity period of which is not less than sixty months provided there is no option for recall by the issuer within the period;
In case of HFCs, additionally, any amount received from NHB and Public Housing Agency shall be exempted from the definition of public deposits.
Types of Debentures
22
Based on:
▫ Tenure
▫ Seniority
▫ Creation of security
▫ Nature of guarantee
▫ Convertibility
▫ Ratings
▫ Coupon rate
▫ Rate of interest
▫ Option to redeem
▫ End use
23
Features of market linked debentures(MLDs):
Concept of MLDs▫ Structured/hybrid product▫ Return linked to underlying index/ security▫ Refer our article on MLD
Regulatory arbitrage
Plain vanilla NCDs v/s MLDs▫ Risk and return
FY 2017 FY 2018 FY 2019 Q1 FY 2020
G-sec/ Bond Underlying 5 13 26 37
Nifty Underlying 95 87 74 63
95
87
74
63
5
13
26
37
0
10
20
30
40
50
60
70
80
90
100
Proportion of MLDs with different underlying index(in percentage)
Nifty Underlying G-sec/ Bond Underlying
Valuation requirement ▫ Third party valuation agency appointed by
AMFI • Earlier CRA
24
Market Linked Debentures
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 (Q1)
Amount in crores 1,992 2,632 4,874 8,400 7,365 12,246 3,667
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Am
ount
in c
rore
s
Financial Year
MLD Issuance (in crores)
Source: CARE report on MLDs
25
Green Bonds/Climate Bonds
26
Green Bonds/ Climate Bonds – for projects/assets under any of the following category:
▫ Renewable and sustainable energy including wind, solar, bioenergy, other sources of energy which
use clean technology etc.
▫ Clean transportation including mass/public transportation etc.
▫ Sustainable water management including clean and/or drinking water, water recycling etc
▫ Climate change adaptation.
▫ Energy efficiency including efficient and green buildings etc.
▫ Sustainable waste management including recycling, waste to energy, efficient disposal of wastage etc.
▫ Sustainable land use including sustainable forestry and agriculture, afforestation etc.
▫ Biodiversity conservation.
27
Issuer Issue Size End use Listing status
State Bank of India USD 100 million For renewable energy, low carbon buildings, waste pollution and control, etc.
BSE’s India International Exchange (India INX)
Indian Railway Finance Corporation Limited
USD 500 million To finance eligible Green Projects under Dedicated Freight Railway Lines and Public Passenger Transport
BSE’s India International Exchange (India INX)
Yes Bank INR 500 Crores To finance Green Infrastructure Projects in Renewable Energy and Energy Efficiency Projects including Solar Power, Wind Power, Biomass, and Small HydelProjects.
Wholesale debt market segment of BSE
Adani Green Energy UP Ltd
USD 500 million To re-finance solar electricity generation facilities where a 100% of electricity generated from the facility is derived from solar energy resources
BSE’s India International Exchange (India INX)
State of Indian Green Bond Market
https://www.indiainx.com/static/gssustainablebonds.aspx
Infrastructure Bonds
28
Infrastructure as per Harmonised Master List of Infrastructure sub-sectors issued by Government of India
RBI guidelines on issue of long term bonds by Banks
▫ Unsecured
▫ Minimum maturity of 7 years
▫ Plain vanilla bonds without call/put options
▫ Purpose
• To finance long term projects in infrastructure and loans for affordable housing
▫ Benefits – exemption from SLR and CRR requirements, and exemption from priority sector lending
requirements
External Commercial Borrowings (ECB)
29
Real Estate activities.
Investment in capital market
Equity investment
Working capital purposes, except where availed from:
▫ Foreign equity holder with minimum average maturity
period (MAMP) of 5 years.
▫ Other recognised lenders with MAMP of 10 years.
General corporate purpose, except where availed from:
▫ Foreign equity holder with MAMP of 5 years.
▫ Other recognised lenders with MAMP of 10 years.
Repayment of rupee loans, except in case of:
▫ ECB with minimum MAMP of 7 years availed for
repayment rupee loans availed domestically for capital
expenditure
▫ ECB with minimum MAMP of 10 years availed for
repayment rupee loans availed domestically for
purpose other than capital expenditure.
On-lending to above for above activities, in case of:
▫ ECB raised by NBFCs for following purpose subject to
meeting MAMP requirements:
• Working capital or general corporate purpose;
• Repayment of rupee loans
Negative list, for which the ECB proceeds cannot be utilised for:
Modes of Issuance of Debentures & Regulatory
framework
30
Modes of Issuance of Debentures
Modes of issue of Debentures
Public Limited Company
Public Issue
Private placement
Bonus issue
Private Limited Company
Private placement
Bonus issue
31
Regulatory Framework
32
• Companies Act, 2013• Section 23, • Section 29 r/w Rule 9A of PAS Rules • Section 42 r/w Rule 14 of PAS Rules• Section 71 r/w Rule 18 of SHA Rules• Sections 179, 180
• SEBI Regulations• SEBI ( Issue and Listing of Debt Securities)
Regulations, 2008• SEBI (Debenture Trustees) Regulations, 1993• SEBI (Issue and Listing of Non-Convertible
Redeemable Preference Shares) Regulations, 2013• SEBI ( Issue of Capital and Disclosure
Requirements) Regulations, 2018
• FEMA• FEMA (Non-Debt Instruments) Rules, 2019• FEMA (Debt Instrument) Regulations, 2019• FEMA (Borrowing and Lending) Regulations, 2018
• RBI• Directions on Raising Money through Private
Placement of Non-Convertible Debentures(NCDs) by NBFCs, HFCs
• RBI Master Circular on Basel III Norms.• Master Directions on NBFC-ND-SI (Annex XVII)
Private Placement v/s Public Issue
33
Pre-issue approvals and requirements
34
Board and shareholder’s approval
In-principle approval of stock exchange
Due diligence of issuer
Limit on ISIN
▫ Maximum 17 ISINs maturing in any financial year.
(12 ISINs for plain vanilla and 5 additional ISINs
for structured debt securities).
▫ Additional, 12 ISINs for issuance of the capital
gains tax debt securities by authorised issuer
under section 54EC of Income Tax Act, 1961.
▫ Exemption is granted for debt securities
issued to raising regulatory capital.
Consolidation and re-issuance [Reg. 20A of ILDS
Reg.]:
▫ Approved by AoA
▫ Issue is through private placement
▫ Fresh credit rating for re-issuance is obtained and
such rating is revalidated on a periodic basis.
▫ Disclosure w.r.t reissuance in the term sheet.
Filing of offer document with SEBI
Issue related requirements
35
Issue Size
Format of offer document
Record of Issuance
Demat /physical issuance
Nature of investors
Limit on investors
Minimum subscription
Two categories in case of issuer being an NBFC or HFC.
Shelf prospectus
Newspaper advertisement for issuance
Electronic book-building mechanism
▫ Private placement of debt securities where single issue
(including green shoe option), self issue or aggregate issue
capital equal to or exceeds 200 crores.
▫ Issuance of AT 1 instruments.
Category A Category B
Minimum Subscription of Rs. 1 Crore
Minimum subscription Rs. 20,000 per investorMaximum Subscription of Rs. 1 Crore
No such limit NCDs can issued to maximum 200 investors in a FY.
Option with issuer Secured
36
Parking monies in separate bank accounts
Application Supported by Blocked Amount (ASBA)
▫ Mandatory in case of public issue [w.e.f October
01, 2018]
▫ UPI has been mode of payment available for
blocking funds [w.e.f January 01, 2021]
Timeline for allotment of NCDs
▫ Public Issue: T+4 working days
▫ Private Placement: T+2 working days
Engagement of intermediaries
▫ Credit rating agencies
• CRAs shall meet the audit committee of the
issuer to discuss issues bearing on rating of
the listed NCDs. [SEBI Circular dated
November 04, 2019]
▫ Lead merchant banker
▫ Debenture trustee
• In case of public issue of debentures
◦ Section 71(5)
◦ Reg. 4(5) of SEBI ILDS
• In case invitation to members exceeding
500.
• In case of private placement of debentures
?
• DRR/ DRF
Post Issue
37
Listing Requirement Time line
* Pursuant to SEBI Circular dated August 16, 2018
** Pursuant to SEBI Circular dated October 05, 2020
Particulars Public Issue Private Placement
Making listing application to SEs and obtain listing and trading permission.
T + 5 days (working days)
T+4 days (working days)
Trading Commences T + 6 days (working days)
T+5 days (working days)
Effective date October 01, 2018* December 01, 2020**
Debenture Redemption Reserve and Debenture Redemption Fund
38
Debenture Redemption Reserve▫ Created out of the profits available for payment of dividend;▫ Created in respect for debentures maturing during the year ending March 31 next year;▫ Amount can be utilised only for payment of redemption of debenture.
Debenture Redemption Fund▫ Minimum 15% of the amount maturing during the year ending March 31 next year shall be invested / deposited in any
one of the following mode:• Schedule Commercial bank;• unencumbered securities of the Central methods of deposits or from any charge or lien; Government or any State
Government;• Unencumbered securities/bonds issued by any other company notified under Indian Trust Act, 1882.
▫ Investment/ deposit to be made on or before April 30 of each year.
39
Particulars Types of Issuance
DRR (BeforeAugust 16, 2019)
DRR (From August 16, 2019)
DRF (Before June 12, 2020)
DRF (From June 12, 2020)
All India financialinstitution
Public/private X X X X
Banking Companies Public/private X X X X
Listed NBFCs and HFCs Public 25% of the outstanding value
X 15% of debentures maturing during the year ending March 31
15% of debentures maturing during the year ending March 31
Private X X X
Unlisted NBFCs and HFCs
Private X X X X
Other listed companies Public 25% of the outstanding value
X 15% of debentures maturing during the year ending March 31
15% of debentures maturing during the year ending March 31Private 25% of the
outstanding valueX
X
Other unlisted companies
Private 25% of the outstanding value
10% of the outstanding value
15% of debentures maturing during the year ending March 31
15% of debentures maturing during the year ending March 31
Status Post Listing under CA, 2013
Section 2(52) of the companies act defines ‘listed
company’ as:
▫ "listed company" means a company which has any of its securities listed on any recognised stock exchange;
Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies
Effective from January 22, 2021
40
MCA notification dated February 19, 2021
following companies from the definition of
listed companies:
▫ Public companies with listed NCDS and
NCRPRS issued on private placement basis.
▫ Private companies with listed NCDS in terms of
SEBI ILDS.
▫ Public companies with equity shares
exclusively listed on foreign stock exchanges.
Amendment is effective from April 01, 2021.
Analysis of companies who have listed their debt securities
41
Only debt securities Both equity and debt securities
BSE 457 119
NSE 93 60
BSE & NSE 37 42
457
11993
6037 42
0
50
100
150
200
250
300
350
400
450
500
No
. o
f co
mp
an
ies
Listed securities
BSE NSE BSE & NSE
42
Listed entities
Companies
Public Companies
Listing of equity
Publicly offered
Listed Company
Listing of preference
shares
Publicly offered
Listed Company
Privately placed
Listing of debt securities
Publicly offered
Listed Company
Privately placed
Private companies
Listing of debt securities
Privately placed
Others*
Companies Act not applicable, SEBI regulations to be
applied as appropriate.
43
Provision Dealing with Other criteria
Provisions/ exemptions applicable only to a listed public company
Sec 71 r/w rule18 (7) (b) (iii) (B) of SHA Rules
Creation of debenture redemption reserve
Sec 71(4) r/w 18(7)(b)(v) of SHA Rules
Creation debenture redemption fund
Sec 92 r/w rule 11 of MGT Rules
Certification of Annual return by PCS Company with: Paid up share capital ≥ Rs.10 crore; Turnover of Rs. 50 crore or more
Section 120 r/w rule 27 of MGT Rules
Company may maintain records in electronic form
Company having not less than 1000 shareholders, debenture holders and other security holders.
44
Provision Dealing with Other criteria
Provisions/ exemptions applicable only to a listed public company
132 read with Rule 3 ofNFRA Rules
Investigation by NFRA Unlisted public companies having:▫ Paid up capital ≥ Rs. 500 Crores; or▫ Annual turnover ≥ 1000 crores or▫ Aggregate outstanding loans, debentures and
deposits ≥ 500 crores.
Insurance, banking, companies engaged ingeneration in generation or supply of electricity,companies governed by special act or bodiesincorporated by an Act in accordance with clauses(b), (c), (d), (e) and (f) of sub-section (4) of section 1of the CA, 2013.
Sec. 134(3) r/w rule 8(4)of AOC
Statement in Board report indicatingmanner of Board evaluation
Public company with paid up share capital ≥ 25 crores.
45
Provision Dealing with Other criteria
Provisions/ exemptions applicable only to a listed public company
Sec 136 r/w rule 11 of AOCRules
Financial statements may be sent in electronic format
Public companies which have: Net worth ≥ 1 crore; and Turnover ≥ 10 crore
138 r/w rule 13 of AOC Rules
Appointment of internal Auditor Unlisted public company having-▫ Paid up share capital ≥ Rs. 50 Crore; or▫ Turnover ≥ Rs. 200 crore; or ▫ Outstanding loans from banks or public financial
institutions ≥ Rs. 100 crore; or▫ Outstanding deposits ≥ 25 Crores.
Every private company▫ Turnover ≥ Rs. 200 crores; or ▫ Outstanding loans or borrowings from banks or PFI
≥ Rs. 100 crores
Sec 139 r/w rule 5 of ADTRules
Mandatory rotation of statutory auditor Unlisted public company having paid up share capital ≥ 10 crore;
Private companies having paid up share capital ≥ Rs. 50 crores.
All companies having public borrowings from FI, banks or public deposit of ≥ Rs. 50 crores.
46
Provision Dealing with Other criteria
Provisions/ exemptions applicable only to a listed public company
Sec 149 r/w 3 of DIR Rules Appointment of women director Public company having: Paid –up share capital of ≥ Rs. 100; or Turnover of ≥ Rs. 300 crore.
Sec 151 r/w rule 7 of DIR Rules
Appointment of small shareholder’s director Public company having Paid-up share capital ≥ Rs. 100 Turnover ≥ Rs. 300 crore.
151 read with rule 7 of DIR Rules
Appointment of small shareholder’s director -
177 read with rule 7 of MBP Rules
Establishment of vigil mechanism for the directors and employees
Companies which accept deposit from the public; Borrowed money from banks and public financial
institutions > Rs. 50 crores.
197(12) read with rule 5 of MR Rules
Disclosure requirement regarding ratio of remunerations of each director to the median employee’s remuneration and such other details as prescribed in the Rules.
-
47
Provision Dealing with Other criteria
Provisions/ exemptions applicable only to a listed public company
Sec 203 read with rule 8 of MR Rules
Appointment of whole-time key managerial personnel.
Public company having a paid –up share capital of ≥ Rs. 10 crores.
Private company having paid up capital of ≥ 10 crore
Sec 204 read with rule 9(2) of MR Rules
Secretarial Audit Public company having ▫ paid-up share capital ≥ Rs. 50 crores; or ▫ Turnover ≥ Rs. 250 Crore.
Every Company having outstanding loans or borrowings from banks or PFI ≥ Rs. 100 crores.
Provisions applicable only to a listed public company
Sec 121 r/w rule 31 of MR Rules
Report on annual general meeting -
Sec 149 (4) r/w rule 4 of DIR Rules
Atleast 1/3rd of total number of Board members shall be independent directors.
Unlisted company fulfilling criteria shall have at least 2 IDs.
Public companies having: Paid up share capital ≥ 10 crore; or Turnover ≥ 100 core; or Aggregate outstanding loans, debentures and deposits >
50 crores.
48
Provision Dealing with Other criteria
Provisions applicable only to a listed public company
Sec 177 & 178 read with rule 6 of MBP Rules
Requirement of constitution of an audit committee and a nomination and remuneration committee
Public companies having: Paid up share capital ≥ 10 crore; or Turnover ≥ 100 core; or Aggregate outstanding loans, debentures and deposits >
50 crores
49
Position in case of listing regulations
▫ As SEBI LODR listed entity means an entity which has its
designated securities listed on a recognized SE.
▫ Designated securities include:
• Equity and convertible securities;
• Non-convertible debentures;
• Non-convertible redeemable preference shares;
• Perpetual debt instruments;
• Perpetual non-cumulative preference shares;
• Indian depository receipts;
• Securitized debt instrument;
• Units of mutual fund.
• Separate chapters in SEBI LODR for
• Equity listed – Chapter IV
• Only NCDs/NCRPS listed – Chapter V
• Both equity and NCDs/NCRPs listed- Chapter VI
Position of debt listed companies in case of PIT
Regulations
▫ No specific definition of listed company in PIT regulations
• Companies Act definition of listed company to be
referred
• Companies with only debt/NCRPS listed need not
comply with PIT regulations.
RECENT AMENDMENTS
50
NBFCs to create charge on identified assets/
receivables.
▫ Not implemented
Implementation status of proposals in
SEBI Consultation Paper of February, 2020
51
Enhanced Disclosures and framework for
imposing fine and SOP for the same.
▫ Implemented only for LODR violations. SEBI
Circular of Nov 12, 2020
Enhanced DD of identified assets and granular asset
cover certificate
▫ Implemented. DT (Amendment) Regulations, 2020.
Calling default at ISIN Level
▫ Implemented. SEBI Circular Oct 13, 2020
Mechanism for joining ICA and voting mechanism
▫ Implemented. SEBI Circular Oct 13, 2020
Creation of Recovery Expense Fund
▫ Implemented. SEBI Circular Oct 22, 2020
Disclosures by DTs for performance evaluation
of DTs
▫ Not implemented;
Public disclosure of covenants by issuer in IM
▫ Implemented. ILDS (Amendment) Regulations,
2020.
Standardisation of DTD
▫ Implemented. DT (Amendment) Regulations, 2020.
Disclosure by DTs on website relating to
issuers
▫ Implemented. SEBI Circular of Nov 12, 2020
Recovery Expense Fund (REF)SEBI circular October 22, 2020
52
Requirement ▫ Issuer to create a recovery expense fund (REF) to be
utilised by the Debenture Trustee in case of event of default.
Applicability ▫ All issuers of listed debt securities.
Applicability to past issues as well?▫ Yes. Additional time of 90 days provided to comply
with the same.
Effective from▫ January 01, 2021
Quantum of creation ▫ 0.01% of the issue size subject to maximum of Rs.
25 lakhs per issuer.
Who creates it?▫ Issuer
In whose name?▫ Stock exchange
Manner of creation ▫ Cash or cash equivalent, including bank guarantee.
Validity of bank guarantee▫ Till 6 months post the maturity date of listed
debt security.▫ Guarantee shall be renewed 7 working days before
the expiry.
Any exemption? Disclosure requirement? Who shall oversee? How will the amount be received by DT? What about balance in REF? What about interest earned? Any possibility of commingling at DT level? What if amount gets exhausted?
Undertaking in the IM on creation of security
▫ Regulation 21B of ILDS
▫ Assets are free from encumbrance; or
▫ Permission or consent obtained from earlier
creditor
• In case of second or pari-passu charge.
Amendments in ILDS Reg w.e.f. Oct 8, 2020
53
Obligation on Issuer to create REF
▫ Regulation 26 (7) of ILDS
Disclosures in Schedule I
▫ All covenants of the issue (including side letters,
accelerated payment clause, etc.);
▫ Description regarding security, if any, including type of
security, type of charge etc.
▫ Event of Default (including manner of voting. Conditions of
joining ICA)
▫ Creation of REF- Details and purpose of REF
▫ Conditions for breach of covenants as specified in DTD
▫ Risk factors pertaining to the issue.
▫ Statement on recovery in case of secured debentures
• That the recovery of 100% of the amount shall
depend on the market scenario prevalent at the time
of enforcement of the security.
• Note 4 inserted.
Additional disclosure in IM – Sebi Circular – Nov 3, 2020
▫ Debt securities shall be considered as secured only if the
charged asset is registered with Sub-registrar and Registrar
of Companies or CERSAI or Depository etc., as applicable,
or is independently verifiable by the debenture trustee.”;
Amendments in DT Reg w.e.f. Oct 8, 2020
54
Obligation of DT w.r.t. format of DTD
▫ Reg. 14 of DT Regulations.
Duties of DT
▫ Monitoring security creation, DRR and REF
• Reg. 15 (1) (h) of DT Regulations.
▫ Obligation to call meeting of debenture holders
• In case of breach of covenants (as specified in IM orDTD) –Reg. 15 (2) (b)
▫ Carrying out independent DD before creation of security
• Reg. 15 (6).
▫ Enter into ICA subject to approval of debenture holders
• Reg. 15 (7)
Duties of DT w.r.t. Asset cover and DD
▫ Regulation 15 (1) (t) of DT Regulations,
applicable where debt securities are secured by
book debts/ receivables.
▫ DD, monitoring of asset cover – Quarterly basis
• Earlier certificate from the Director/
Managing Director.
▫ Obtain certificate from statutory auditor giving
value of receivables/ book debts, including
compliance with covenants – Half yearly basis
• Earlier annually from independent
chartered accountant.
Amendments in LODR Reg w.e.f. Oct 8, 2020
55
Asset Cover [Reg. 54]
▫ Listed entity to maintain 100% asset cover or
asset cover as per the terms of offer doc/IM
and/or DTD, sufficient to discharge the principal
amount at all times.
▫ Exemption in case of unsecured debt securities
issued by a regulated financial sector entities
eligible for meeting capital requirements,
deleted.
Disclosures to DT [Reg. 56]
▫ All covenants of the issue (including side letters,
accelerated payment clause etc.).
▫ Half yearly certificate on asset cover and compliance
with covenants, from statutory auditor, along with half
yearly financial results.
• Earlier exemption provided to banks or NBFCs.
Information to be given to DT w.r.t. Creation of SecuritySEBI Circular – Nov 3,2020 w.e.f. April 1, 2021
56
Information to be provided at the time of DTA
▫ Details of assets including title deeds, title reports,
agreements, proof of registrations with authorities etc.
▫ In case of unencumbered assets, undertaking to that effect.
▫ In case of encumbered assets, on which charge is to be
created
• Details of existing charge along with details of charge,
proof of registration etc.
• Consent/ NOC from existing charge holders
• In case of negative lien, NOC from existing unsecured
lenders.
▫ In case of personal guarantee
• Relationship with issuer, Net worth statement
certified by CA of the guarantor, executed copies of
previously entered agreements.
Information to be provided at the time of DTA
▫ In case of Corporate guarantee
• Details of guarantor, audited financial
statements (not older than 6 months) including
details of all contingent liabilities .
• Impact on security in case of restructuring
activity of the guarantor.
• executed copies of previously entered
agreements.
▫ In case of securities offered as security
• Holding statement from DP along with
undertaking to pledge in favor of DT
▫ Details of any other form of security being offered
• Debt Service Reserve Account etc.
Due Diligence by DTSEBI Circular – Nov 3,2020 w.e.f. April 1, 2021
57
Who is to carry?
▫ Debenture trustee(s) by itself or through its advisers or
experts.
Preparation of reports
▫ By itself or through appointed agencies
• CA firm, Registered valuer, legal counsel etc.
• valuation report, ROC search report, title
search report/ appraisal report, asset cover
certificate, any other report/ certificate as
applicable etc.
What to verify?
▫ In case of assets
• Verify on the encumbrance, necessary permission,
consents etc.
• Verify from RoC, Sub-registrar, CERSAI, IU or other
sources.
• In case of conditional consent, verify the validity from
terms of transaction documents. Intimate the charge
holders via email about proposal to create charge and
wait for comments/ NOC for next 5 working days.
▫ In case of personal guarantee, corporate guarantee – DT to
verify relevant filings on MCA, SE, CIBIL, IU etc.
Furnishing of DD certificate
▫ One at the time of filing draft OD/ PPM/IM and
another at the time of filing listing application.
▫ Subject to necessary disclosures in OD/ IM/PPM
• About information on consents/ permission;
creation of security and all covenants..
▫ DD certificate (first one) to form part of the
OD/IM/PPM.
58
Contents of DD certificate 1SEBI Circular – Nov 3,2020 w.e.f. April 1, 2021
Standardisation of Debenture Trust Deed (DTD)
DTD shall comprise of 2 parts
▫ Part A: Standard clause applicable to all DTDs
▫ Part B: Customised and specific clause applicable for particular issue
Payment related information in DTD [SEBI circular dated June 23, 2020]
▫ Provide bank details from which the issuer proposes to pay redemption amount.
▫ Pre-authorised DTs to seek redemption related information from the issuer’s bank.
59
Continuous monitoring by Debenture Trustee SEBI Circular – November 12, 2020
60
Enabling Provisions to be inserted under DTD:▫ Terms and conditions for periodic monitoring by the Debenture trustees shall form part of DTD. ▫ For existing debt securities, issuers and DT shall enter into supplemental/amended debenture trust deed within
120 days from Nov 12, 2020 incorporating the changes in the DTD. Submission of periodic reports to the DT in order for DT to submit reports to Stock Exchange.
Reports/Certificate Periodicity
Asset Cover Certificate Within 60 days from the end of quarter.
Value of Pledge Securities
Statement of value for Debt Securities Reserve Account
Net Worth certificate (in case of personal guarantor) 60 days from the end of each half year
Audited financials of the corporate guarantor 75 days from the end of financial year.
Valuation report and title search report for the immovable/ movable assets
Note: Provisions of this circular shall be applicable form quarter ended December 31, 2020
Disclosure on website by DTSEBI Circular – November 12, 2020
61
Note: Provisions of this circular shall be applicable form quarter ended December 31, 2020
Union Budget 2021
62
Creation of a permanent institutional framework to purchase investment grade debt securities both instressed and normal times and help in development of the bond market
Enabling Pooled Investment Vehicle to raise debt, including by way of bonds, with powers under SARFAESI Act, 2002.
Institutional framework for secondary trading in bonds▫ Proposed body to act as market maker for investment grade bonds.
Stamp Duty
63
Particulars Mode of issuance Rate of stamp duty
Value on which stamp duty to be charged
Payable by whom
Issue of Debenture
Physical Rs. 500 per 1 crore Issue price Issuer
Demat Allotment list
Re-issuance of Debentures
Physical and Demat Rs. 10 per 1 crore Consideration mentioned ininstrument
Issuer
Transfer Demat and not transferred through stock exchange
Rs. 10 per 1 crore Consideration mentioned ininstrument i.e. delivery instruction slip
Transferor of debenture
Demat and transferred through SE
Market Value Buyer
Physical Consideration mentioned ininstrument
Seller or transferor of debentures
Continual Compliances – LODR, PIT, SEBI Circulars
64
Continuous Compliance
65
Provision Deals with Fine/ Penalty
General Obligation
Reg. 6 of LODR Requirement for appointment of compliance officer along with his obligations.
Rs. 1,000 per day
Reg. 7(1) of LODR Appointment of share transfer agent or managing the transfer facility in house
Rs. 1,000 per day
Reg. 9 of LODR Policy for preservations of documents
Reg. 13 of LODR Registration on SCORES platform Rs. 1,000 per day
Monthly Compliance
Enhanced disclosure in case of listed debt securities(Circular dated May 27, 2019)
Furnishing of updated list of debenture holders to DTs within 7 working days
Company shall furnish a No-Default Certificate to the credit Rating Agencies. (circular dated January 03, 2020)
Company shall furnish a No-Default Certificate to the Credit Rating Agencies.
66
Provision Deals with Penalty
Quarterly Compliance
Reg. 13(3) of LODR Submission of statement of investor complaints with SE. Rs. 1000 per day
Half-yearly Compliance
Reg. 7(3) of LODR Submission of half-yearly compliance certificate
Reg. 52(1) of LODR Submission of financial results and other information Rs. 5,000 per day
Reg. 52(4) of LODR Disclosure of line items along with financial results Rs. 1,000 per day
Reg. 52(5) of LODR Submission of certificate signed by DT confirming it has taken note of contents of line items published with financial results
Rs. 1,000 per day
Reg. 52(7) of LODR Submission of statement indicating material deviation
As per SEBI circular dated January 17, 2020 statement indicating deviation or variation in the use of proceeds of issue of listed NCDs shall be reviewed by the audit committee of the company.
Rs. 1,000 per day
Reg. 52(8) of LODR Newspaper publication of financial results
Reg. 56(1)(d) of LODR Submission of half yearly certificate regarding maintenance of asset cover and compliance of all covenants with DT
67
Provision Deals with
Half-yearly Compliance
Specifications related to International Securities Identification Number (ISINs) for debt securities issued under the SEBI (ILDS) Regulations, 2008(Circular dated June 30, 2017)
Submit a statement with recognised stock exchange as depository providing information relating to Issuance date, maturity date, coupon rate, payment frequency, embedded option if any, amount issued w.r.t reporting half year.
Annual Compliance
Reg.14 of LODR Payment of listing fees
Reg. 52(3) of LODR Annual financials shall be accompanied with a statement on impact of audit qualifications for audit qualification.
Reg. 53 of LODR Disclosure under annual report
Reg. 55 of LODR Obtaining/annual review of credit rating with respect to NCDs
Reg. 57(2) of LODR Submission of undertaking confirming submission of information and documents to DTs
Fund raising by issuance of Debt Securities by Large Entities
Disclose the fact whether company is identified as large corporate or not; Details of incremental borrowings done during the FY.
Enhanced governance norms for CRAs (Circular dated November 04, 2019)
CRAs to meet the audit committee of the rated entity
68
Provision Deals with Penalty
Event Based
Reg. 7(4) of LODR Compliance/ intimation w.r.t appointment/change of share transfer agent.
Reg. 50(1) of LODR Intimation of due date for payment Rs. 1,000 per ISIN
Reg. 50(2) & (3) of LODR Prior Intimation to raise funds Rs. 1,000 per ISIN
Reg. 51 of LODR Disclosure of material/ price sensitive information
Reg. 56 of LODR Submission of information/documents with DTs
Reg. 57(1) of LODR Disclosure of payment information Rs. 1,000 per day per ISIN
Operational framework for transactions in defaulted debt securities post maturity date/ redemption date under provisions of SEBI (ILDS) Regulations, 2008 (Circular dated June 23, 2020)
Intimation of status of payment of debt securities to stock exchange, depositories and debenture trustees within 1 working day.
Disclosures by listed entities of defaults on payment of interest/ repayment of principal amount on loans from banks / financial institutions and unlisted debt securities (Circular dated November 21, 2019)
Disclosure in case of default in payment of interest/ instalments obligations on loans,including revolving facilities like cash credit,from banks /financial institutions and unlisted debt securities.
69
Provision Deals with Penalty
Event Based
Reg. 59 of LODR Prior approval of stock exchange before material modification in the structure of NCDs
Rs. 50,000 per instance
Reg.60(2) of LODR Intimation of record date Rs. 10,000 per ISIN
Other Compliance
Reg. 54 of LODR Maintenance of asset cover and disclosure of the extent and nature of security created and maintained shall be disclosed in financial results.
Rs. 1000 per day [for Reg. 54(2)]
Reg. 58 of LODR Submission of documents and information to holders of NCDs and NCPS
Reg. 61 of LODR Terms of non-convertible debt securities and non-convertible redeemable preference shares.
Reg. 62 of LODR Website disclosure Advisory/warning letter per instance of non-compliance per itemRs. 10,000 per instance for every additional advisory/warning letter exceeding the four advisory/ warning letters in a financial year.
70
Provision Deals with
SEBI (Prohibition of Insider Trading) Regulations, 2015
Reg.2(c) r/w Reg.9(3) Appointment of compliance officer
Reg. 3(5) and (6) Maintenance of structured digital database
Reg. 7 Obtaining and maintaining disclosure
Reg. 8 Formulation and publishing of code of fair disclosure
Reg. 9(1) Formulating code of conduct
Reg. 9(4) Identification of designated persons
Reg. 9A Internal controls to be put in place to prevent insider trading
Reg.9A(5) Policy for inquiry in case of leak UPSI
71
Closure of trading window in case of debt listed company
Quarterly /Half Years Submission of results to SE Period of Trading window in case debt listed entity has no holding company.
Period of trading window closure in case of submission of results for consolidation.
April to June - Not required From July 1 till 48 hours of declaration of consolidated results by holding company.
July to September (Q2) - From October 1 till 48 hours after declaration of financial results
From October 1 till 48 hours after declaration of financial results by debt listed entity.
April – September (HY-1) Required
October – December (Q3) - Not required From January 1 till 48 hours of declaration of consolidated results by holding company.
January – March (Q4) - From April 1 till 48 hours after declaration of financial results.
From April 1 till 48 hours after declaration of financial results by debt listed entity.October – March (HY-2) Required
