- Quick Contact:
- +91 22 2167 8100
Compliances of High-Value Debt Listed Entity pursuant to SEBI LODR fifth Amendment - MMJC
SEBI has vide its amendment notification dt: September 7, 2021 has amended the SEBI LODR Chapter IV and Chapter V. We would first understand the amendment under Chapter IV of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulation 2015 [‘LODR 2015’] and its implications
Chapter IV of LODR 2015 is now applicable to listed entity that has listed its specified securities and non-convertible debt securities. But SEBI with this amendment has brought in a new category of non-convertible debt listed entity i.e., High-Value Debt Listed Entity. Provisions relating to High Value Debt Listed Entity are added under a new sub-regulation to Regulation 15 viz. Regulation 15 (1A). Regulation 15(1A) talks about applicability of Chapter IV of LODR 2015 to High Value Debt Listed Entity
What is High Value Debt listed entity?: An entity which has listed its non-convertible debt securities on a recognised stock exchange and has an outstanding principal value of listed non-convertible debt securities of Rs. 500 Crore and above will be categorized as ‘High value debt listed entity’.
What if an entity has outstanding principal debt of Rs 500 crore or more listed as on date? This amendment would be applicable to non-convertible debt listed entities whose value of principal outstanding of listed debt securities as on March 31, 2021 exceeds the limits. Further if any entity has listed its non convertible debt and it crosses the limit of 500 crore (Principal outstanding) then such entities will have to comply with Corporate Governance norms within a period of six months. So if an entity has its non-convertible debt securities on a stock exchange and it is of high value as stated above then such entities will have to start complying with Corporate Governance norms as provided under Chapter IV.
What if the non-convertible debt listed entity had as on March 31, 2021 non-convertible debt of more than Rs 500 crore but during the year it got repaid and now as on March 31, 2022 the value of non-convertible debt listed is less than Rs 500 crore then is it necessary to comply with Corporate Governance norms?: Yes once the limit of Rs 500 crore is breached it will be applicable in perpetuity [Regulation 15(3)]
Applicability under various scenarios:
| Sr.no | Company | Impact |
| 1 | Equity (Chapter IV applicable) and High value debt listed entity | No change as *1 corporate governance norms were already to be complied. |
| 2 | Equity (Chapter IV applicable) but not high value debt listed entity | Corporate Governance norms not applicable to debt securities. No immediate actionable |
| 3 | Equity (Chapter IV – Not applicable) but High value debt listed entity | Compliance will have to be taken as corporate governance norms are applicable now. *2 (See below) |
| 4 | Equity (Chapter IV – Not applicable) and not high value debt listed entity | No change as corporate governance norms are still not to be complied. |
*1 – Chapter IV provisions are also called as corporate governance norms.
*2 – High value debt listed entity —
- shall ensure compliance with these provisions within six months from the date of such trigger
- on a ‘comply or explain’ basis until March 31, 2023, and on a mandatory basis thereafter.
‘Comply or explain’ shall mean that the entity shall endeavour to comply with the provisions and achieve full compliance by March 31, 2023. In case the entity is not able to achieve full compliance with the provisions, till such time, it shall explain the reasons for such non-compliance/ partial compliance and the steps initiated to achieve full compliance in the quarterly compliance report filed under clause (a), sub regulation (2) of regulation 27 of LODR Regulations,2015.
In case of a ‘high value debt listed entity’ that is a Real Estate Investment Trust (REIT), the Board of the Manager of the Real Estate Investment Trust (REIT), shall comply with regulation 15 to regulation 27 of these regulations related to corporate governance.
In case of a ‘high value debt listed entity’ that is an Infrastructure Investment Trust (InvIT), the Board of the Investment Manager of the Infrastructure Investment Trust (InvIT), shall comply with regulation 15 to regulation 27 of these regulations related to corporate governance.
Chapter IV Corporate Governance norms – obligations of a listed entity which has listed its specified securities and non-convertible debt securities would apply i.e., Regulation 15 to regulation 27 of this chapter shall apply to a High value debt listed entity.
Actionable for complying with Corporate Governance norms:
| 1 | Applicability | Regulation 15 – Check the value of outstanding non-convertible debt securities listed on recognised stock exchange as on March 31, 2021. Also keep a check on issuance of new non-convertible debt securities. |
| 2 | Independent Directors | Regulation 16 – Categorisation of non-employee trustees in case of trusts that have listed their non-convertible debt securities listed as ‘Independent Directors’ Regulation 25 : Separate Meeting of Independent Directors, ensuring that appointment, re-appointment and removal of Independent Director is by way of special resolution, familirisation programme for independent director shall be conducted, taking of directors and officers liability insurance, While appointment or reappointment of Independent Director ensuring that compliance is done with Regulation 25(6) and Regulation 25(11). |
| 3 | Composition of Board of Directors | Regulation 17 & 17A – Checking of Composition of Board of Director & Maximum number of directorships held by directors of companies |
| 4 | Committee | Regulation 18 / Regulation 19/ Regulation 20 / Regulation 21– Check whether Committees are formed or not? If it’s formed then check whether composition of these committees is in compliance with LODR 2015 or not? |
| 5 | Vigil Mechanism | Regulation 22 – Vigil mechanism – Company will have to formulate a vigil mechanism whistle blower policy for directors and employees to report genuine concerns. |
| 6 | Related Party Transactions | Regulation 23 – Related party transactions Company will have to formulate a policy on materiality of related party transactions and on dealing with related party transactions including clear threshold limits duly approved by the board of directors. Also other compliances needs to be taken care of viz. prior approval of audit committee for related party transactions, voting restrictions in case of approval of material related party transactions etc. |
| 7 | Compliances for subsidiaries | Regulation 24 & 24A – Corporate governance requirements with respect to subsidiary of listed entity & Secretarial Audit and Secretarial Compliance Report – Deputation of an Independent Director on the Board of Unlisted material subsidiary, audit committee will have to review the financial statements, in particular, the investments made by the unlisted subsidiary, minutes of the meetings of the board of directors of the unlisted subsidiary shall be placed at the meeting of the board of directors of the listed entity, significant transaction and arrangements entered into by unlisted subsidiary shall be brought before board of directors of listed entity, keeping a check on investment in material subsidiary and ensuring that it is not brought upto 50% without members approval etc. |
| 8 | Obligations of senior management | No immediate actionable. |
| 9 | Filing of Corporate Governance Report | Regulation 27 – Filing of Corporate Governance Report with Stock exchanges within a period of 21 days beginning quarter ended September 2021. |
Above compliances are to be done by High Value Debt Listed Companies with effect from September 7, 2021 and if they are not complied with then reasons will have to be given for non-compliance in the Corporate Governance Report [third Explanation to Regulation 15(1A)]
SEBI LODR 2015 fifth amendment can be accessed at below-mentioned link: