SEBI formalises guidelines for issuance of Green Debt Securities in India, by Abhirup Ghosh

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”)[1]. 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”)[2]. 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

Amendments to the SEBI (Debenture Trustee) Regulations, 1993 by Somesh Lund

The Securities and Exchange Board of India (SEBI) in its board meeting held on 26 April 2017 [1] has approved the amendments to the SEBI (Debenture Trustee) Regulations, 1993[2] (hereinafter referred to as “Regulations”)as proposed in the consultative paper issued on 16 February 2017[3].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.

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SEBI’s proposal for more stringent Monitoring of Utilization of Issue Proceeds, by Somesh Lund, 22nd May, 2017

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009[1] (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[2]  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.

Conclusion

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.

[1] http://www.sebi.gov.in/legal/regulations/apr-2017/sebi-issue-of-capital-and-disclosure-requirements-regulations-2009-last-amended-on-march-6-2017-_34697.html

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

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

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.

[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