Listing of Debentures

What is Debenture? Definition:

As per subsection 30 of section 2 of Companies Act, 2013, debentureincludes debenture stock, bonds or any other instrument of acompany evidencing a debt, whether constituting a charge on theassets of the company or not.

Meaning:Instruments of Debt executed by the company.A C tifi t f LA Certificate of Loan.Company pays pre specified percentage of interest.

Types of Debenturesyp

Convertible Non‐Convertible NonConvertible

O i llC l il Contingent Convertible Redeemable

Optionally Convertible

IrredeemableCompulsorily  Convertible 

Partly Fully Partly Fully

Laws Applicable to Issue of DebenturesLaws Applicable to Issue of Debentures

Apart from the Companies Act,pa o e o pa es c ,2013, debenture issue is regulatedby SEBI and RBI Regulations.D b i b iDebentures issues by companieswhich wants to get thedebentures listed are alsodebentures listed are alsorequired to comply with debtlisting agreements.

Eligible Subscribers without triggering d it i i f CA 2013deposit provision of CA, 2013

Compulsorily Convertible Debentures:N t i ti th t f b ibNo restriction on the type of subscriber.Debentures compulsorily shall beconvertible into shares of the companywithin five yearswithin five years.

Non Convertible Debenture/ OptionallyC tibl D b tConvertible Debenture:

Indian CompanyPerson resident outside IndiaOthers

Deposit:The company has to

Deposit:p y

comply with thedeposits provisionsdeposits provisionsfor issue ofdebentures to nondebentures to non‐exempted category,as it attracts thedefinition of deposit.

From whom to acceptFrom whom to acceptFrom whom to acceptFrom whom to accept

Eligibility Criteria

Public Co. in order Public Co. in order to accept from other than

Every other Co. l fother than 

members(Eligible Co.)

only from Members

Net worth 100 Cr or more

Turnover 500 Cr or more

Threshold limitsThreshold limitsThreshold limitsThreshold limits

Eligible Co.

from members only, then till 10% of Paid up Capital + free reserves

h h ld l f

gfrom other than 

members, then till 25% of Paid up Capital + 

free reservesThreshold limits for accepting or renewal of  Deposits by various 

Co. Govt. Eligible Co. till 35% of Paid up Capital + free reserves

Other than Eligible Co.from members only, 

then till 25% of Paid up g pCapital + free reserves

Tenure of DepositTenure of DepositTenure of DepositTenure of Deposit

f

Deposits shall be accepted

Minimum for 6 months

pMaximum for 36 months

If accepted for less than 6 months

Such deposits shall not be more than 10% of paid up capital + 

f

Minimum 3 months shall elapse before repayment of depositsfree reserves before repayment of deposits

Issue of Debentures – Companies Act, 2013

A company may issue debentures –convertible or non‐convertibleI f d b t i t h iIssue of debentures into shares requiresapproval of shareholders by passing a specialresolutionDebenture Trustee to be appointed beforeDebenture Trustee to be appointed beforeissuing a prospectus or making an offer tocompany’s members exceeding 500 personsCompany issuing secured debentures toexecute debenture trust deed not later than60 days after the allotment of debenturesNo secured debentures can be issued with aredemption period beyond ten years from theredemption period beyond ten years from thedate of the issue; A company engaged insetting up infrastructure projects can issuedebentures which are redeemable not beyondthirty years from the date of the issue

A company (including manufacturing /i f ) i i NCD DRRinfrastructure) issuing NCDs to create DRRequivalent to atleast 25% of the amount raised bythe debenture issue before the debentureredemption commences

No DRR by All India Financial Institutions andBanking Companies for debentures issued;

NBFCs registered under RBI Act to create DRR of25% for debentures issued through public issue; NoDRR in case of privately placed debentures by them

The company shall on or before 30th April each yearinvest or deposit a sum which is not less than 15% ofthe amount of its debentures maturing during thethe amount of its debentures maturing during theyear ending on 31st day of March of the next year(As per Rules)

DRR shall not be utilised by the company except forthe purpose of redemption of debentures

SEBI Debt Issue Regulations The NCDs may be listed onythe Wholesale Debt Market(“WDM”) segment ofrecognized stock exchangein accordance with theDebt Issue RegulationsDebt Issue Regulationsissued by SEBI and theListing Agreement whichg ggoverns the issue andlisting of NCDs

Issue of debenture on private placement basisIssue of debenture on private placement basisIn terms of the Debt Issue Regulations, theCompany interested in issuing NCDs for theCompany interested in issuing NCDs for thepurpose of raising debt should be able to listits NCDs, issued on a private placementbasis, subject to inter alia the followingconditions being fulfilled:conditions being fulfilled:NCDs have been in compliance with theprovisions of the Companies ActCredit rating has been obtained in respect of

h f l dsuch NCDs from at least one credit ratingagency registered with SEBIAppointment of Debenture TrusteeNCDs proposed to be listed are inp pdematerialized form

Issue of debenture on private placement basis

Also, the Company has to make necessarydisclosures under Regulation 21 of theDebt Issue Regulations for listing

d d b ( ) dunsecured debt securities (NCDs) issuedon private placement as prescribed underSchedule I of Debt Issue Regulations whichinclude nature of debt securities andinclude nature of debt securities andmode of issue i.e. public issue or privateplacementUnder the Debt Issue Regulations theUnder the Debt Issue Regulations, theissuer has to maintain 100% asset cover(and not security cover) in respect of theprincipal amount raised through the NCDsprincipal amount raised through the NCDsat all times the NCDs are listed

Steps InvolvedSteps InvolvedThe issuance of NCD would entail the following

steps:Obtaining electronic connectivity from the DP.Obtaining credit ratingApproval of shareholders in terms of section42 of CA, 2013Execution of debenture trustee agreementwith the debenture trusteeExecution of Debenture SubscriptionAgreement (“DSA”) / InformationMemorandum (“IM”) and other commercialconsiderationsconsiderationsObtaining in principal approval from the stockexchangeAllotment of debenturesFiling of final listing application with the stockexchange

Activity ListActivity List

Finalise issue size  Agreement with Apply for inprincipal

& Structure exchange and R&T

b lS b i l

principalapproval fromExchange

Prepare IM Appoint Trustee and R&T

Submit relevant forms with respective 

authorities forg

authorities for listing

Pay necessaryFinalise Investor Get Rating 

Pay necessary stamp duty, ROC 

fees

Additional Conditions ‐ Public Issue of DebenturesAdditional Conditions   Public Issue of DebenturesUnder Public Offering should be opento public, whereas under privateplacement company can choose itsown investorsIssue of Prospectus is Compulsoryp p yThe issuer shall appoint one or moremerchant bankers registered with theB d t l t f h h ll bBoard at least one of whom shall be alead merchant bankerThe issuer shall not issue debtsecurities for providing loan to oracquisition of shares of any personwho is part of the same group or whowho is part of the same group or whois under the same management

Agencies Involved

Rating Agency  CRISIL, ICRA, CARE, India Ratings (Fitch), Brickworks andSMERA

SEBI registered Debenture Trustees 

http://www.sebi.gov.in/sebiweb/home/detail/154/new/Registered‐Debenture‐Trustees.

Stock Exchange NSE or BSEStock Exchange  NSE or BSE

Depository  NSDL & CDSL

Stamp duty  Preferred route for payment of stamp duty of 0.5% per yearbut not exceeding 0 25but not exceeding 0.25.

Registrar & Transfer Agents (RTA) 

Preferable to use the same RTA if the shares of the companyare dematerialized

On Going CompliancesOn Going Compliances

Credit Rating  Obtain credit rating periodically

Half‐yearly compliance The Issuer shall forward to the debenture trustee promptly whether aHalf‐yearly compliance certificate 

The Issuer shall forward to the debenture trustee promptly, whether arequest for the same has been made or not, a half‐yearly certificateregarding maintenance of 100% asset cover in respect of listed debtsecurities, by either a practicing company secretary or a practicingh t d t t l ith th h lf l fi i l ltchartered accountant, along with the half yearly financial results

Publication of audited financials on half‐yearly basis

The investee should publish its limited review/ audited financials resultsevery six months in a leading daily

yearly basis If equity listed:

The Issuer agrees that while submitting the half yearly/ annual results, itshall:shall:separately indicate the following line items after the item Earnings PerShare:(a) debt service coverage ratio; and(b) i t t i ti(b) interest service coverage ratio.

OnMaturity

Debentureredemption reserve

Not applicable for NBFCs if issued onprivate placement basis.

De list on repayment The investee should inform the stockDe‐list on repayment The investee should inform the stockexchange on repayment for de‐listing

Debit corporate The investee should initiate debitDebit corporateAction

The investee should initiate debitcorporate action post repayment toextinguish the units

Ambit of Listed Companies as per Companies Act 2013Ambit of Listed Companies as per Companies Act, 2013

Ambit of Listed Companies as per Companies Act 2013Ambit of Listed Companies as per Companies Act, 2013

A company which has any of its securities listed on any recognized stock exchange.

The company even if having its debentures/preference sharelisted on any recognized stock exchange is now deemed to belisted on any recognized stock exchange is now deemed to beconsidered as the Listed Company.

Additional compliance for private companies onAdditional compliance for private companies on listing of debentures 

Appointment of Independent Directors interms of CA, 2013 in terms of section 177Implementation of vigil mechanismp e e a o o g ec a sFormation of nomination & remunerationcommitteeAppointment of women directorAppointment of women directorApplicability of Secretarial auditAppointment of KMP

fMaintenance and inspection of documents inelectronic formPublish Results.

Tricky IssuesTricky Issues

Valuation of Debenture inValuation of Debenture interms of Section 42 ofCA 2013CA, 2013Payment of stamp dutyfor issue of debenture infor issue of debenture inDemat formA bit f li t dAmbit of listed companyin terms of CA, 2013

Listed Debentures VS ECB

Li t d D b tListed Debentures areexcluded from the purviewof ECB and hence theof ECB and hence, thecriteria viz. eligibleborrowers, eligible lenders,end‐use requirements etc.applicable to ECBs, is not

li bl i h fapplicable in the case ofNCDs.

Company X is the business ofCompany X is the business ofretailing of certain FMCG products.In terms of the FDI regulations, FDIi lti b d i ll d bj t tin multi brand is allowed subject tocertain stringent conditions. TheCompany wants to avail funds from

f h i i ione of the prospective investors inthe form of equity or debt. TheCompany is not satisfying theconditions required for availing FDIin retail. The ECB norms will not beadhered as the Company wants touse the amount for working capital.

Q tiQuestions