Framework for consolidation and re-issuance of debt securities issued under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, by Somesh Lund, 22nd May, 2017

The Companies Act,1956 had provisions regarding the consolidation and reissuance of debt securities under section 121.This section gave the company power to keep the same security alive for the purpose of re-issue after it’s been redeemed. This helped the company to increase liquidity in the secondary debt market. However Companies Act, 2013 was silent on this matter.

Thus to clarify on this subject SEBI issued a concept paper on 04 December, 2014[1] proposing amendment in SEBI (Issue and Listing of Debt Securities) Regulations, 2008 to this effect.

The concept paper was followed by a consultation paper issued on 2nd February, 2017[2] to seek comments regarding the consolidation and re-issuance of debt securities. The consultation paper provided an in detail analysis of the corporate bond market and also spoke about the remarkable growth of the primary debt market and the relatively slower growth of the secondary debt market.

Therefore, with an objective to further facilitate the debt market it considered and approved proposals regarding the consolidation and re-issuance of debt securities during its board meeting on 26th April, 2017[3]

The SEBI’s board in its meeting approved the following:-

• The board approved a cap of 12 ISINs (International Securities Identification Number) maturing per financial year. Furthermore, the issuer can also issue additional 5 ISINs per financial year as structured debt instruments of a particular category. However, this restriction is not applicable on debt instruments which are used for generating regulatory capital like Tier I, Tier II bonds, etc;
• The issuer can as a one-time exercise during the tenure of the security make a choice between making a  bullet maturity payment or the issuer can make staggered payment of the maturity proceeds within a particular financial year to resolve this issue of concentration of liabilities which may give rise to asset-liability mismatch for the issuer;
• Active consolidation of existing corporate debt securities through switches and conversions has not been made mandatory.
• There should not be any clause prohibiting consolidation and re-issuance in the Articles of Association of the issuer/company.

Conclusion

This is a step in the right direction and has been welcomed with open arms as these measures will help boost liquidity in the debt/bond market.

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[1] http://www.sebi.gov.in/reports/reports/dec-2014/concept-paper-on-consolidation-and-reissuance-in-corporate-bond-market_28526.html

[2] http://www.sebi.gov.in/reports/reports/feb-2017/consolidation-and-re-issuance-of-debt-securities-issued-under-the-sebi-issue-and-listing-of-debt-securities-regulations-2008_34120.html

[3] http://www.sebi.gov.in/media/press-releases/apr-2017/sebi-board-meeting_34761.html

The author can be contacted at: corplaw@vinodkothari.com