Sebi to Merge Debt Securities Rules

To ease compliance burden on listed entities, Sebi has proposed merger of listing rules pertaining to debt securities and non-convertible redeemable preference shares into a single regulation.

Wednesday’s proposal is aimed at harmonising with the Companies Act, 2013, and maintaining consistency with 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 which, the board has suggested merger of ILDS (Issue and Listing of Debt Securities) norms and the issue and listing of NCRPS (Non-Convertible Redeemable Preference Shares) regulations into a single regulation — issue and listing of NCS (Non-Convertible Securities) 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, they have suggested that the requirement of minimum tenure of three years for public issue of NCRPS be done away with, as it restricts flexibility of issuers to structure their issuance as per their resource requirement, and to raise funds.

Sebi has suggested removal of restriction of four issuances in a year through a single shelf prospectus.

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 also been proposed that issuers be allowed to file shelf prospectus, provided they have cured the default at least 30 days prior to filing the draft shelf prospectus.

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 they are allowed to make public issue of NCRPS.

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 restrictions.

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. ILDS regulations were enacted for the issuance and listing of debt securities, whereas NCRPS regulations were enacted for the issuance and listing of non-convertible redeemable preference shares.

Subsequent to the implementation of 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.

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’s are hybrid equity and debt instruments, carrying a fixed dividend rate while also being redeemable. The holder is also 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 ‘quasi-debt’ instruments.

The regulator said a need was felt to merge and realign the ILDS and NCRPS regulations to ensure ease of reference and language, and to remove redundancies.

The proposal will simplify and align the regulations in line with various circulars and guidance issued by Sebi, and improve the structure of regulations to enhance readability, the regulator said.

The proposed merger is aimed at identifying policy changes in line with present market practices and prevailing regulatory environment, and to ease doing business, it added.

In addition, it will separate chapters on the basis of type of issuance — public or private placement, as well as instruments — debt securities, commercial papers, etc, so that all relevant information is sorted and available at one place.