The Securities and Exchange Board of India (SEBI) on July 13, 2017 issued the SEBI (Debenture Trustees) (Amendment) Regulations, 2017 (Amendment Regulations) in order to amend the SEBI (Debenture Trustees) Regulations, 1993 (Principal Regulations) and make the reference to the corresponding provisions of the Companies Act, 2013 (Act, 2013) instead of the erstwhile reference of Companies Act, 1956 (Act, 1956). Read more
SEBI vide notification dated March 24, 2015 had provided framework for consolidation and re-issuance of debt securities under Regulation 20A of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (‘ILDS Regulations’) subject to fulfillment of certain conditions. One of the conditions was to have an enabling Read more
Ms. Richa G. Agarwal
Deputy General Manager
Investment Management Department
Securities and Exchange Board of India
Sub: Representation on the exemptions related to International Securities Identification Number (ISINs) for debt securities issued under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and clarity on initial reporting.
Ref: SEBI Circular No. CIR/IMD/DF-1/ 67/2017 (‘SEBI Circular’) issued on June 30, 2017.
Indian Securitisation Foundation (ISF)
ISF is a not-for-profit entity representing the securitisation industry in India. The membership of the Foundation includes banks, NBFCs, microfinance institutions, other issuers and investors and securitisation professionals for promoting interest of securitisation and fixed income securities in India. As ISF is dedicated to the cause of promoting securitisation, asset-based financing and related areas in India, we humbly submit our recommendations herein below on the captioned subject which may have significant impact on the intent of the circular.
1. SEBI Circular
Para 2.2 of the SEBI Circular provides for exemption from applicability of ISINs. The text of the exemption is as follows:
2.2. Exemptions from applicability of ISINs:
The following classes of debt securities issued for raising regulatory capital are exempted from the applicability of provisions of this circular:
Tier II bonds issued by Non-Systemically Important Non-Deposit taking Non-Banking Financial Company issued as per RBI “Master Direction-Non-Banking Financial Company-Non-Systemically important Non-deposit taking Company (Reserve Bank) Directions, 2016”dated September 01, 2016. (Emphasis Supplied)
2. NBFC-ND-SI Directions
Para 6 of the Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (‘NBFC-ND-SI Direction’) provides that every applicable NBFC shall maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than 15 percent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items.
3. NBFC-ND-NSI Directions
Para 46 and 48 of the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 (‘NBFC-ND-NSI Directions’) requires every NBFC-IFC (Non-Banking Finance Company – Infrastructure Finance Companies) and NBFC-MFI (Non-Banking Finance Company – Micro Finance Institutions), respectively, to maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than 15 percent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items.
4. Our Representation
- Including Tier-II bonds issued by NBFC-ND-SI in exemption category – Considering the provisions of law, following scenario emerges as far as applicability of capital adequacy is concerned:
- Applicable NBFCs as defined under para 2 of the NBFC-ND-SI Directions are required to comply with the capital to risk assets ratio thereby necessarily required to maintain tier-I and tier-II capital.
- NBFC-IFC-NSI and NBFC-MFI-NSI complying with the provisions of NBFC-ND-NSI Directions are required to with the capital to risk assets ratio thereby necessarily required to maintain tier-I and tier-II capital.
- Every other NBFC-ND-NSI is required to maintain a leverage ratio.
As evident from the text of the SEBI Circular, only those companies have been exempted from applicability of ISINs which issues debt securities for raising regulatory capital; however, it seems that the SEBI Circular have inadvertently missed adding NBFC-ND-SI within the exemption list.
Therefore, it is a humble request to consider including the following:
“2.2.8. Tier II bonds issued by Systemically Important Non-Deposit taking Non-Banking Financial Company issued as per RBI “Non-Banking Financial Company -Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016” dated September 01, 2016.”
- Clarity with respect to initial reporting requirement – Para 3.1.1. of the SEBI Circular requires the issuer to submit the data in the format prescribed under the said para. The SEBI Circular does not specify to whom such data shall be submitted, i.e., to recognized stock exchange only or to recognized stock exchanges as well as a depository or to SEBI. In this regard, we request you to kindly clarify as to whom the submission shall be made.
For Indian Securitisation Foundation
The Securities and Exchange Board of India (SEBI) on 30th May, 2017 came out with a circular stating the disclosure requirements for issuance and listing of Green Debt Securities in India (hereinafter referred to as “Circular”). Earlier in December, 2015, SEBI had come out with a concept paper for issuance of Green Bonds in India (hereinafter referred to as “Concept Paper”). The Concept Paper brought out the need for enhanced disclosures for issuance of green bonds so as to differentiate it from other form of debt securities issued and listed in India and the Circular is largely in line with the concept paper. Read more
The Securities and Exchange Board of India (SEBI) in its board meeting held on 26 April 2017  has approved the amendments to the SEBI (Debenture Trustee) Regulations, 1993 (hereinafter referred to as “Regulations”)as proposed in the consultative paper issued on 16 February 2017.The consultative paper was placed on SEBI’s website and suggestions were invited.
The Companies acts, 2013, as well as the SEBI regulations, prescribe the framework pertaining to debenture trustees. This led to several overlaps and ambiguities. Thus with a view to address this issue, SEBI formed a task force comprising of SEBI officials and representatives of the debenture trustees to conform the Debenture Trustee Regulations with the Companies Act,2013.
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) requires that while raising funds from the public, the company has to mention the object for raising the fund.
Thus to maintain the integrity of the above clause, SEBI in its board meeting conducted on April 26, 2017 has proposed stringent rules and provisions to have better oversight on the utilization of funds raised through the public. This is a measure to keep a check on the misuse of these funds.
The Major changes proposed are:-
- Appointment of Monitoring agency
|Present Requirement||every company issuing securities in excess of Rs. 500 crore has to appoint a Monitoring agency|
|Proposed Requirement||every company issuing securities in excess of Rs. 100 crore has to appoint a Monitoring agency;|
|Rationale for Proposal||To determine if the funds raised are utilized for the prescribed purpose. By decreasing the limit a larger number of companies will fall under the net of Monitoring agencies|
- Frequency of report by monitoring agency report
|Present Requirement||Monitoring Agency is required to submit its report to the issuer half-yearly.|
|Proposed Requirement||Monitoring Agency is required to submit its report to the issuer quaterly|
|Rationale for Proposal||Gives SEBI better oversight and timely information|
- Timely submission of Monitoring Agency Report
|Present Requirement||No such requirement exist|
|Proposed Requirement||Report to be submitted within 45 days from end of the quarter.|
|Rationale for Proposal||Such disclosure will help investors and other concerned persons to obtain timely information.|
- Disclosure of the Monitoring Agency Report on Company’s website
|Present Requirement||Disclosure of the Monitoring Agency Report on companies website not mandatory|
|Proposed Requirement||Disclosure of the Monitoring Agency Report on companies website is mandatory|
|Rationale for Proposal||Companies Act, 2013 prescribes that prior approval from shareholders is required for any change of object. Thus it is very important that the shareholders get regular update on utilization of issue proceeds.|
- The Board of Directors comments on the findings of the monitoring agency.
|Present Requirement||No such requirement exist|
|Proposed Requirement||It is mandatory for the Board of director’s comments on the findings of the monitoring agency.|
|Rationale for Proposal||Creates onus on the Board of Directors to insure that the funds are utilized for the prescribed purpose.|
These measures will help SEBI to monitory the utilization of funds as all deviations, other than the purpose for which the fund was raised, are to be reported by the monitoring agency. If the funds are utilized for any other purpose the report will also mention if the prerequisite approvals from board/shareholders have been obtained.
The author can be contacted at: email@example.com
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 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 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
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.
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.
The author can be contacted at: firstname.lastname@example.org