Consultation Paper on measures towards Ease of Doing Business and streamlining compliance requirements for Non- Convertible securities – review of LODR Regulations
Background
- Hon’ble Finance Minister in her consecutive budget speeches had proposed to increase depth of debt market and had also asked all regulators to bring in ease of doing business though consultative approach. In this regard Securities and Exchange Board of India (‘SEBI’) has inter-alia brought a total of 10 consultation papers in last three years for revamping and reviewing debt segment of stock market. This underscores SEBI’s focus on ease of doing business. We had undertaken a comprehensive study of all these consultation papers vide in our article which can be accessed at this link: https://www.taxmann.com/research/company-and-sebi/top-story/105010000000024029/sebi-initiatives-in-improving-depth-of-debt-market-experts-opinion
- SEBI introduced the concept of ‘High Value Debt Listed Entities’ whereby debt listed entities having outstanding debt of more than 500 crore would be required to comply with corporate governance norms. Also SEBI vide its recent consultation paper on measures towards ease of doing business for non-convertible securities dt: May 9, 2024 proposed deletion of disclosures relating to PAN, personal address of promoters of companies in offer documents submitted with SEBI. Further SEBI proposed rationalization, standardization, and parity in various disclosures required to be made in offer documents vide this consultation paper.
Consultation paper on alignment of compliances of debt listed entities with equity listed entities
- Now, SEBI vide Consultation Paper dt: August 16, 2024 seeks to align compliances undertaken by debt listed entities with that applicable to equity listed entities to bring in ease of doing business for entities having both equity and debt securities listed.
- Alignment of definition of fraud: It has been proposed to seek to align definition of ‘fraud’ for debt listed entities with the definition of ‘fraud’ as is applicable to equity listed entities thereby bringing alignment in understanding and disclosure of frauds and arrest alerts to stock exchange. Hence it is proposed to replace the existing clause A.17 of part B of the Schedule III of the LODR Regulations which is specified for debt listed entities with clause A.6 of Part-A of Schedule III of LODR regulations which is specified for equity listed entities hence aligning language of both the provisions.
- Filing of disclosures in XBRL format: Currently, the debt listed entities are being asked by the stock exchanges to submit the disclosures in both XBRL and PDF format. This leads to multiple filings under the same regulation and duplication of effort for listed entities to file data in different formats. Hence it is proposed to have similar provision regarding disclosures to be filed in XBRL format for debt listed entities as specified for equity listed entities in line with regulation 36(4) of the LODR regulation. This means that filing of all disclosures by listed entity (having listed non-convertible securities) with Stock Exchanges to be in XBRL format in line with provision specified for equity listed entities.
- Reduction in timeline for disclosure of record date: Further with respect to regulation 62, it is proposed to reduce the timeline for intimation of record date to stock exchanges by entity having listed non-convertible securities from ‘atleast seven working days’ to ‘atleast three working days by aligning the provision with that of regulation 42 of LODR regulation.
- Relaxation in listing of ISIN: Further, in order to encourage issuers to list their grandfathered outstanding unlisted ISINs, it is proposed that unlisted ISINs outstanding as on December 31, 2023, converted to listed ISINs, subsequent to introduction of Regulation 62A, may be exempted from the limit of 14 ISINs specified in clause 1 of Chapter VIII of the NCS Master Circular.
- Signing of financials: This CP also seeks to align approval and authentication of financial results by debt listed entities with that of equity. The intent behind proposed provision is to align the requirement under regulation 52(2)(b) with that regulation 33(2)(b) of SEBI LODR regulations i.e. alignment of provision regarding approval and authentication of financial results for entities having listed non-convertible securities with that for equity listed entities. SEBI’ response to the appeal by Hon’ble Finance Minister is commendable. The appeal by Hon’ble Finance Minister is to reduce excessive reliance on equity market in India and increase the depth of debt market. Hence we would see similar initiatives by regulators going forward.
- Detailed comparison of existing vs proposed changes in provided in Annexure I.
- This consultation paper is open for public comments latest by September 6 ,2024.
Annexure I
The recommendations as mentioned above are presented in comparative format against existing provision for better understanding :
| Regulation | Existing Provision under LODR regulation | Proposed Provision under LODR regulation |
| Signing of financial results | Reg. 52(2)(b) The listed entity shall comply with following requirements with respect to preparation, approval, authentication and publication of annual and quarterly financial results: (b) The quarterly results shall be taken on record by the board of directors and signed by the managing director/ executive director” | Replacing the existing provision under Reg, 52(2)(b) with below referred provision: The quarterly financial results submitted shall be approved by the board of directors. Further, the financial results submitted to the stock exchange shall be signed by the chairperson or managing director, or a whole time director or in the absence of all of them; it shall be signed by any other director of the listed entity who is duly authorized by the board of directors to sign the financial results. |
| Definition of fraud | Clause A.17 of Part-B of Schedule III reads as under: “Fraud/ defaults by promoter or key managerial personnel or director or employees of listed entity or by listed entity or arrest of key managerial personnel or promoter” | Replacing clause A point 17 Part B Schedule III provisions with one referred below: “Fraud or defaults by a listed entity, its promoter, director, key managerial personnel, senior management or subsidiary or arrest of key managerial personnel, senior management, promoter or director of the listed entity, whether occurred within India or abroad For the purpose of this sub-paragraph: (i) ‘Fraud’ shall include fraud as defined under Regulation 2(1)(c) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. (ii) ‘Default’ shall mean non-payment of the interest or principal amount in full on the date when the debt has become due and payable. Explanation 1- In case of revolving facilities like cash credit, an entity would be considered to be in ‘default’ if the outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than thirty days. Explanation 2- Default by a promoter, director, key managerial personnel, senior management, subsidiary shall mean default which has or may have an impact on the listed entity.” |
| Timeline for intimation of record date | “(1) The listed entity shall fix a record date for purposes of payment of interest, dividend and payment of redemption or repayment amount or for such other purposes as specified by the stock exchange. (2) The listed entity shall give notice in advance of at least seven working days (excluding the date of intimation and the record date) to the recognised stock exchange(s) of the record date or of as many days as the stock exchange(s) may agree to or require specifying the purpose of the record date.” | “(1) The listed entity shall fix a record date for purposes of payment of interest, dividend and payment of redemption or repayment amount or for such other purposes as specified by the stock exchange. (2) The listed entity shall give notice in advance of at least three working days (excluding the date of intimation and the record date) to the recognised stock exchange(s) of the record date or of as many days as the stock exchange(s) may agree to or require specifying the purpose of the record date.” |
| Filings of disclosures made by listed entities | Fillings made in XBRL and PDF format | Filings to be made in XBRL format only except for financial results. |
| Relaxation in listing of ISIN. | Clause 1.1 of Chapter VIII of NCS Master Circular reads as under: “1. In respect of private placement of debt securities, the following shall be complied with regard to ISINs, utilised to issue debt securities from April 1, 2023: 1.1 A maximum number of fourteen ISINs maturing in any financial year shall be allowed for an issuer of debt securities. In addition, a further six ISINs shall also be available for the issuance of the capital gains tax debt securities…………” | Unlisted ISINs outstanding as on December 31, 2023 being converted to listed ISINs subsequent to introduction of Regulation 62A of the LODR Regulation to be exempted for the purpose of computation of the limit of 14 ISINs specified in clause 1 of Chapter VIII of the NCS Master Circular |