Centralised database for Corporate Bonds & Debentures
-SEBI’s new circular provides further ease of access of information
Payal Agarwal, Executive | Vinod Kothari and Company ( corplaw@vinodkothari.com )
Introduction
SEBI, the capital market regulator in India, has brought a series of amendments in the month of May, 2021 amending all the major regulations applicable to the entities under its regulatory ambit. The trend is still being continued by SEBI. This time, SEBI has brought a circular for streamlining the information available in the centralised database, in order to provide ease of access of information to the investors. In view of the same, the erstwhile circular dated 22nd October, 2013 (2013 Circular) dealing with the centralised database for the corporate bonds/ debentures have been superseded by the circular dated 4th June, 2021 (Circular). Through this Circular, some enhanced disclosure requirements are required to be ensured by the issuers, while responsibility is placed upon the shoulders of credit rating agencies and debenture trustees to verify the information given by the issuer as well as notify the discrepancies, if any to the stock exchanges.
Applicability
This Circular is applicable for all recognised stock exchanges, registered depositories, registered credit rating agencies, debenture trustees, and issuer of listed debt securities.
Further, this Circular is applicable for debt securities issued on or after 1st August, 2021.
Actionable
On the part of depository
The role of depositories are almost same as that under the 2013 Circular.
Under the 2013 Circular
The 2013 Circular put the following responsibilities on the depositories –
- Depositories were required to jointly, create, host, maintain and disseminate the centralized database of corporate bonds/debentures, which are available in demat form.2. Depositories shall provide the requisite infrastructure and host the database.
- Depositories were responsible to ensure adequate systems and safeguards to maintain the integrity of the data and to prevent manipulation of the data.
- Depository was required to synchronize the database in consultation and sharing with other depository.
- The Information Providers such as stock exchanges, credit rating agencies and debenture trustees were required to be provided secure logins by the depositories for verification and updation of the requisite information in the database.
- The Depository which receives the information was required to host the same as well as share it with the other Depository for hosting within three working days from the date of receipt of the information.
- Depositories were also required to provide the information available with respect to the Redeemable Preference Shares and Securitized Debt Instruments, in a separate section within the database, in the form as available with them, after sharing the same with the other depository for synchronizing and updating the database.
Under this Circular
The erstwhile requirements as per the 2013 Circular are still applicable on the depositories. However, there are certain additional requirements that comes as a result of the Circular, which is, categorisation of the investors as per the SEBI circular dated 30th November, 2015. This circular requires the depository to categorise the investors in 3 categories –
- Promoter and promoter group
- Public
- Non promoter and non public
Moreover, the depositories are also required to inform the stock exchanges of the extinguishment of debt securities within 1 working day of same.
On the part of stock exchanges
Under the 2013 Circular
Stock Exchanges were required to access the database on daily basis and update the requisite information regarding the listed bonds/debentures.
Under this Circular
The stock exchanges are required to verify all listing-related information filed by the issuer with the depository. Further, a new annexure, Annex-II has been added, the information under which is required to be filed with the stock exchanges periodically, whenever there is a change, and the stock exchanges shall update the same in the centralised database as and when received.
On the part of credit rating agencies
Under the 2013 Circular
Credit Rating Agencies were required to access the database and update the credit rating provided by the agency and the subsequent rating migrations.
Under this Circular
The information filed by the issuer wrt credit rating is required to be verified by the credit rating agencies (CRAs). Further, where there is any discrepancy in the information, the CRA has to notify the stock exchanges in respect of the same, along with updating the information in the database.
On the part of debenture trustees
Under the 2013 Circular
Debenture Trustees were required to access the database to verify and update the information regarding default history by the issuer and other relevant information pertaining to Debenture Trustees.
Under this Circular
The debenture trustees are required to verify all information relating to the default history of the issuer and in case any discrepancy is noted, notify the same to stock exchanges along with updating the same in the database.
On the part of the issuer of debt securities
The primary responsibility of providing the information is put upon the issuer. The list of information as required is given under Annex-I to the Circular. This Circular is the updated version of the 2013 Circular, and hence, no information as required earlier have been discontinued, only additional requirements/ modification of existing requirements has been made in places. This information is required to be given to the depository at the time of applying for ISIN. Further, the issuer is required to file Annex-II with the stock exchanges whenever there is any change in the information given.
A comparison between the 2013 Circular and this Circular
In order to highlight the additional/modified information that will be required to be disclosed by the issuers, the same has been presented below in a tabular format –
| Particulars of disclosure | Under 2013 Circular | Under this Circular | Remarks |
| LEI or Legal Entity Identifier | Not required | Required to be disclosed for both the issuer as well as group companies | In the Statement on Developmental and Regulatory Policies dated October 4, 2017 it was decided that LEI will be mandated to all corporate borrowers having aggregate fund and non-fund based exposure of Rs. 5 crore and above.Consequently, RBI, vide its circular dated 2nd November, 2017 , have introduced the requirement of obtaining LEI in a phased manner for the large corporate borrowers having credit exposure of Rs. 50 crores or above.Further, vide another circular dated November, 2018, LEI has been made mandatory for dealing in the non-derivative markets.In all these circulars pertaining to LEI mandate, it has been advised to obtain LEI for parent entity and associates and subsidiaries as well. |
| Name and e-mail address of Compliance Officer/Company Secretary | Only name | Name and e-mail address | E-mail address is sought as a method of better communication and co-ordination, since the filing part is generally looked after the Company Secretary. |
| Details of the group companies | Not required | Along with the name, CIN and LEI, the details of relationship of the company with the issuer is also required to be given. | The term “group company” is not defined under the Issue and Listing of Debt Securities regulations, or the Issue and Listing of Municipal Debt Securities Regulations issued by SEBI unlike the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 which define “group companies” to include –
a. Such companies with which there were related party transactions, during the period for which financial information was disclosed, as covered under applicable accounting standards (IND AS 24 and AS 18) b. Other companies as considered material by the Board of Directors. However, whether an issuer for the purpose of this Circular can take a reference to the aforesaid definition is not clear.
|
| Type of issuer (based on ownership) | a. PSU
b. Non PSU |
a. PSU
b. Non- PSU c. Issuer under ILDM regulations |
Another category of issuer has been inserted.
Regulation 2(h) of the ILDM (“Issue and Listing of Municipal Debt Securities) Regulations defines “issuer”. Issuer as per these Regulations, means a municipality as defined under Article 243Q of the Constitution of India, as well as its corporate municipal subsidiary. |
| Type of issuer based on nature of business | a. Bank
b. NBFC c. Others |
a. Bank
b. Bank owned HFC c. Govt owned HFC d. Bank owned NBFC e. Govt owned NBFC f. NBFC- other than above g. HFC- other than above h. Corporate i. Others |
New categories have been added. Specific distinctions have been made between HFCs and NBFCs owned by banks or government or otherwise. Further, what could be the ‘Other’ issuer is also not clear as “Corporate” issuer is separately covered. |
| Type of instrument | a. Bond
b. Debenture |
a. Plain Vanilla Debentures
b. Market-linked Debentures c. Municipal bonds d. Green debt securities e. Perpetual debt instruments f. Others |
Specific categories of debentures and bonds are to be disclosed. Where the instrument does not fall under any of the specified category, the same can be specified in the “others” category. |
| Mode of issue | a. Public issue
b. Private Placement c. Bonus issue |
a. Public issue
b. Private placement – indicate if EBP/not c. Bonus issue d. Scheme of Arrangement e. Others |
Various new modes of issue are prescribed.
EBP or “electronic book platform[1]” has been mandated by SEBI vide its circular dated 21st April 2016 (now substituted with circular dated 5th January, 2018) for specified issuers whose issue size equals or exceeds Rs. 200 crores. Therefore, where an issuer is issuing a debt instrument on private placement basis, it is required to indicate whether it was issued on EBP or otherwise. |
| Scheduled Opening Date
Scheduled Closing Date Actual closing date |
For public issue only | Mandatory for private placement and public issue,
Can be given for others, if applicable |
These are issue related details that were once mandatory to be given for the public offer only, have now been made compulsory for the issue made under private placement mode as well.
The object is to ensure availability of as much information as possible in a composite way. |
| Details of all previous issuances under the same ISIN | Not applicable | In case of further issuance under the same ISIN | SEBI has, vide its circular dated 30th June, 2017 specified a limit on the ISINs to be issued to an issuer company[2].
The circular requires a consolidation of all issuances made by the issuer under same ISIN post 2017-18. In this regard, details of issuances under the same ISIN is sought. |
| Details with respect to guarantee, if any | If guaranteed provide complete details of guarantee | a. Name of guarantor
b. Percentage of guarantee c. Other details of the guarantee |
The information wrt guarantee was sought under both the erstwhile as well as the present circular. Only the information sought has been made more specific. |
| Credit Enhancement Details | This was not required under the erstwhile circular. | Credit Enhancement availed – Yes/No
If availed, details thereon – a. Nature b. Amount c. Other details |
Credit Enhancement is a strategy used by the corporate borrowers to enhance the credit standing of the borrower by reducing the credit risk of the investors. |
| Day Count Convention | (i)30/360*
(ii) Actual/360* (iii)Actual/actual (iv) Actual/365* |
Undertaking that the day count convention is calculated as actual/actual | In the erstwhile format, even though the day count convention was allowed only to be actual/actual, other options were given in order to capture the relevant historical data.
However, the present circular requires an undertaking on the part of the issuer, which will be made available in the centralised database. |
| Details of credit rating – current | a. Name of CRA
b. Credit rating c. Date of credit rating |
a. Name of CRA
b. Credit rating c. Rating outlook d. Date of credit rating e. Date of rating change f. Verification status of CRA g. Date of verification |
Additional disclosures have been sought wrt credit rating, to present an overall view of the creditworthiness of the issuer in a way which can be more reliable for the investors.
Verification by CRA, and reporting to stock exchanges, in case of discrepancy is required. |
| Details of earlier rating | a. Name of CRA
b. Credit rating c. Date of credit rating d. Date of rating change |
a. Name of CRA
b. Credit rating c. Rating outlook d. Date of credit rating e. Verification status of CRA f. Rating action (new, upgrade, downgrade, re-affirm) g. Date of verification |
Rating action is an important additional disclosure, since it will give a fair idea of the change in rating that has actually taken place. The change can be –
1. New – new rating has been assigned 2. Upgrade – previous ratings have been upgraded. This is favourable for the issuer 3. Downgrade – previous ratings have been degraded. This acts negative for the issuers. 4. Re- affirm – This indicates that the CRA has given affirmation that no change in rating has taken place. |
| Shelf prospectus /information memorandum/ offer document/tranches/series | Not required | Hyperlink required to be given which is downloadable, or link of the same as submitted to stock exchange can be given | These documents are available with the stock exchange. However, the purpose of the centralised database is to ensure that the all information are being made available at one place. |
Apart from that, the issuer is also required to file Annex-II with the stock exchanges within 1 working day of any change in the said details. The details include the following –
- Listing Details
- Hyperlink of the “listing notification” by stock exchange
- Details of credit rating – current and previous
- Payment status – details of interest payments as well as redemption payments
- Default history information
Conclusion
The Circular, like any other measure of SEBI, is to ensure more transparency in the information of corporate bonds/ debentures wherein responsibility has been casted upon various sources of information in order to ensure that the information is not only available in the centralised database, but also the same is verified and updated on a real-time basis. While in some areas, additional information has been sought by the issuer, in others, further categorisations have been made in regard with the prevalent laws and regulations which were not prevalent at the time when the 2013 Circular on centralised database was introduced by SEBI.
[1] Our article on the same can be read here
[2] Our article on the same can be read here.
Our other related resources – https://vinodkothari.com/2021/09/structuring-of-debt-instruments/
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