NCS Regulations versus ILDS Regulations

(1)   No issuer shall make an issue of non-convertible securities if as on the date of filing of draft offer document or offer document:

a.       the issuer, any of its promoters, promoter group or directors are debarred from accessing the securities market or dealing in securities by the Board;

b.      any of the promoters or directors of the issuer is a promoter or director of another company which is debarred from accessing the securities market or dealing in securities by the Board

c.       the issuer or any of its promoters or directors is a wilful defaulter;

d.      any of the promoters or whole-time directors of the issuer is a promoter or whole-time director of another company which is a wilful defaulter

e.       any of its promoters or directors is a fugitive economic offender; or

f.        any fine or penalties levied by the Board /Stock Exchanges is pending to be paid by the issuer at the time of filing the offer document:

g.       Provide that the:

(i)    restrictions mentioned at (b) and (d) above shall not be applicable in case of a person who was appointed as a director only by virtue of nomination by a debenture trustee in other company.

(ii)  restrictions mentioned in (a) and (b) above shall not be applicable if the period of debarment is over as on date of filing of the draft offer document with the Board.

(iii)   restrictions mentioned at (c) and (d) shall not be applicable in case of private placement of non-convertible securities

(2)    No issuer shall make a public issue of non-convertible securities if as on the date of filing of draft offer document or offer document, the issuer is in default of payment of interest or repayment of principal amount in respect of non-convertible securities, if any, for a period of more than six months.

Under the NCS Regulations, the condition that the issuer shall not be debarred from accessing the securities market or dealing in securities has been extended to promoter group entity as well. Further, certain additional conditions such as the promoter or WTD shall not be a promoter or WTD of a company which is a wilful defaulter, no promoters or directors shall be fugitive economic offenders or no fines or penalties are pending at the time of filing of offer document have been inserted.

Associating payment of fines and penalties with listing might not be a feasible idea; as there might be situations where the issuer may have raised disputes/concerns on liability to pay such fines/penalties.

The issuer shall make an application to one or more stock exchange(s) and obtain an in-principle approval for listing of its non-convertible securities from the stock exchange(s) where such securities are proposed to be listed:

Provided that where the application is made to more than one stock exchange, the issuer shall choose one among them as the designated stock exchange.

Where the issuer has disclosed the intention to seek listing of debt securities issued on private placement basis, the issuer shall forward the listing application along with the disclosures specified in Schedule I to the recognized stock exchange within fifteen days from the date of allotment of such debt securities.

However, moving forward the issuers will be required to obtain a prior in-principal approval for listing.

Actionable: Going forward issuers will be required to obtain in-principal approval.

The issuer shall appoint a debenture trustee in case of an issue of debt securities.

An issuer proposing to issue non-convertible securities through the on-line system of the stock exchange(s) and depositories shall comply with the relevant applicable requirements as may be specified by the Board.

Framework for right to recall and right to redemption prior to maturity.

However, the NCS regulations have now stipulated that provisions relating to call and put option shall equally apply in case of public issuances as well as private placement.

This seems to take away the flexibility that issuers enjoyed in certain cases for issuers of privately placed debentures for example, where an interest rate in case of delay on part of the issuer could be avoided or kept at a minimal rate, the same will be charged at 15% interest rate.

Aside, also note that put option is a feature only applicable in case of NCDs and not NCPs.

The issuer and the debenture trustee shall execute the trust deed within such timelines as may be specified by the Board.

The NCS Regulations have aligned with requirement for SEBI circular dated November 03, 2021.

It may be noted that reg.59(3) of NCS Regulations save all the circulars, etc. issued under previous regulations as if the same were issued under NCS Regulations.

The issuer shall apply for Securities and Exchange Board of India Complaints Redress System (SCORES) authentication in the format specified by the Board and shall use the same for all issuance of non-convertible securities.

The charge created in respect of the secured debt securities shall be disclosed in the offer document along with an undertaking that the assets on which charge or security has been created to meet the hundred percent security cover is free from any encumbrances and in case the assets are encumbered, the permissions or consent to create first, second or pari passu charge on the assets has been obtained from the existing creditors to whom the assets are charged, prior to creation of the charge:

Provided that sub regulation (2) shall not apply if the charge is created on additional assets other than the assets comprising of hundred percent security cover.

The issuer shall give an undertaking in the Information Memorandum that the assets on which charge is created are free from any encumbrances and in cases where the assets are already charged to secure a debt, the permission or consent to create a second or pari-passu charge on the assets of the issuer has been obtained from the earlier creditor.

However, it must be noted that where additional security cover so provided is a subject asset under any other financing agreements entered into with any other person or lenders, the agreement may provide for obtaining prior consent of such lender

In that case, it might be impractical (and also, not in accordance with law) to say that the issuer can proceed to create encumbrance without obtaining consent of the lender therefore, irrespective of whether any undertaking is given in the offer document, the issuer would need to comply with any contractual covenants wrt to such “additional” security cover

The  issuer  shall  forward  the  listing application along with the disclosures as per this regulation to the stock exchange(s) within such days as may be specified by the Board from the date of closure of the issue:

Where the issuer has disclosed the intention to seek listing of debt securities issued on private placement basis, the issuer shall forward the listing application along with the disclosures specified in Schedule I to the recognized stock exchange within fifteen days from the date of allotment of such debt securities.

(3) Debenture trustee shall submit a due diligence certificate to the stock exchange in the format as specified in Schedule IV of these regulations.

(4) The stock exchange(s) shall list the debt securities only upon receipt of the due diligence certificate from the debenture trustee as per format specified by the Board.

Regulation 44 provides for:

1. The issuer has made adequate provisions for and/or has taken steps to provide for adequate security for the debt securities to be issued.
2. The issuer has obtained the permissions / consents necessary for creating security on the said property (ies).
3. The issuer has made all the relevant disclosures about the security and also its continued obligations towards the holders of debt securities.
4. All disclosures made in the offer document with respect to the debt securities are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.

1. The format of Schedule IV provides for format of due diligence certificate to be given by the debenture trustee before opening of the issue.
2. This certification was not specifically present under ILDS Regulations for private placements; however, in case of November 03, 2020 circular due diligence required due diligence to be undertaken by the debenture trustee in case of issuance of secured debentures. Therefore, NCS Regulations now have a specific clause for due diligence in case of private placement also. 
3. Similar requirement was applicable for public issues under reg. 6(8) of ILDS Regulations.
4. This certification is required to be given at the time of filing of private placement memorandum/ information memorandum/ before opening of the issue and at the time of filing of listing application by issuer  in case of private placement; however, for public issues, this certificate is given at the time of at the time of filing the draft offer document with the stock exchange(s) and prior to opening of the public issue of debt securities.

 The shelf placement memorandum shall indicate a period not exceeding one year as the period of validity of such memorandum which shall commence from the date of opening of the first offer of debt securities under that memorandum, and in respect of a second or subsequent offer of such debt securities issued during the period of validity of that memorandum, no further placement memorandum is required.

An issuer filing a Shelf Disclosure Document under sub-regulation (1), shall not be required to file disclosure document, while making subsequent private placement of debt securities for a period of 180 days from the date of filing of the shelf disclosure document.

This is a welcome move, as this will eliminate hassles for frequent issuers to file shelf prospectus multiple times.

(Schedule I)

Following general instructions for preparation of draft offer document are specified:

1. All information shall be relevant and updated as on the date of the offer document.
2. Source of all statements & claims shall be disclosed.
3. Terms such as “market leader”, “leading player”, etc. shall be used only if these can be substantiated by citing a proper source.
4. Use simple English and technical terms if any, w.r.t. business shall be clarified in simple terms.
5. There shall be no forward-looking statements that cannot be substantiated.
6. Consistency shall be maintained in the style of disclosures.
7. For currency of presentation, only one standard financial unit shall be used.

1. Name, logo, CIN, PAN, date and place of incorporation, registration number issued by any regulatory authority, address of registered and corporate offices, telephone number, website, email.
2. Name, telephone number, email of compliance officer, CS, CFO and Promoters.
3. Name, addresses, logo, telephone number, email and contact person of debenture trustee, CRA,
4. Name, logo, address of Registrar to the issue (RTA) along with its telephone number, fax number, website and email address.
5. Date and type of placement memorandum.
6. Nature, number, price and amount of securities offered and issue size (base issue or green shoe),
7. Aggregate amount proposed to be raised through all the stages of offers of NCS through shelf placement memorandum
8. Issue schedule – Date of opening, closing, earliest closing (if any) of issue.
9. Credit rating (along with cross reference of press release) and all ratings obtained for the private placement.
10. Name of stock exchange where securities are proposed to be listed.
11. Details about eligible investors.
12. Coupon / dividend rate and payment frequency, redemption date and amount and details of debenture trustee.
13. Nature and issue size, base issue and green shoe option, if any, shelf or tranche size, each as may be applicable.
14. Details about underwriting including amount underwritten.
15. Inclusion of compliance clause w.r.t. EBP platform, if applicable.

Para 3.A.a: However, following disclosures were to be made where relevant:

Name and address of the following:

1. Registered and corporate office of issuer;
2. Compliance officer, CFO of issuer;
3. Arrangers, if any;
4. Trustee of the issue;
5. RTA;
6. Credit Rating Agency(ies) of the issue;
7. Auditors of the issuer.

“Instruments offered through the offer document are non-convertible redeemable preference shares and not debentures/bonds. They are riskier than debentures / bonds and may not carry any guaranteed coupon and can be redeemed only out of the distributable profits of the company or out of the proceeds of a fresh issue of shares made, if any, by the company for the purposes of the redemption”

Para II.B.i: However, following disclosures were to be made where relevant:

Name and address of the following:

1. Registered and corporate office of issuer;
2. Compliance officer, CFO of issuer;
3. Arrangers, if any;
4. Trustee of the issue;
5. RTA;
6. Credit Rating Agency(ies) of the issue;
7. Auditors of the issuer.

A complete profile of all the promoters, including their name, date of birth, age, personal addresses, educational qualifications, experience in the business or employment, positions/posts held in the past, directorships held, other ventures of each promoter, special achievements, their business and financial activities, photograph, PAN.

A declaration confirming that the PAN, Aadhaar Number, Driving License Number, Bank Account Number(s) and Passport Number of the promoters and PAN of directors have been submitted to the stock exchanges on which the non-convertible securities are proposed to be listed, at the time of filing the draft offer document.

Declaration confirming submission of information pertaining  to personal details of promoters/ directors of promoters to SEs is a new requirement.

Declaration confirming submission of information pertaining  to personal details of promoters/ directors of promoters to SEs is a new requirement.

The issuer shall specify the stock exchange where the recovery expense fund is being/has been created as specified by SEBI.

Further, the requirement of putting a logo, though not expressly mentioned, was anyways followed.

Further, the requirement of putting a logo, though not expressly mentioned, was anyways followed.

A columnar representation of the audited financial statements on a standalone and consolidated basis for a period of 3 completed years.

Combined financial statements need to be disclosed for the periods when such historical financial statements are not available if the issuer being a listed REIT/listed InvIT has been in existence for a period less than three completed years.

Issuers (other than unlisted REITs / InvITs) who are in existence for less than 3 years may disclose financial statements subject to the following conditions:

i. The issue is made on the EBP platform irrespective of the issue size; and

ii. The issue is open for subscription only to QIB.

Listed issuers may disclose unaudited financial information for the stub period instead of audited financial statements in the format as prescribed in LODR Regulations with limited review report, subject to necessary disclosures in the placement memorandum.

1. Date of allotment
2. No. of equity shares
3. Face value
4. Issue price
5. Consideration (Cash, other than cash, etc)
6. Nature of allotment
7. Cumulative no. of equity shares, equity capital and equity share premium
8. Remarks

1. Date of allotment
2. No. of equity shares
3. Face value
4. Issue price
5. Consideration (Cash, other than cash, etc)
6. Nature of allotment
7. Cumulative no. of equity shares, equity capital and equity share premium
8. Remarks

1. Date of allotment
2. No. of equity shares
3. Face value
4. Issue price
5. Consideration (Cash, other than cash, etc)
6. Nature of allotment
7. Cumulative no. of equity shares, equity capital and equity share premium
8. Remarks

1. Details w.r.t. lending done out of the issue proceeds of earlier issuances of debt securities (whether public issue or private placement) by NBFC.
2. Portfolio Summary of borrowings made by NBFC.
3. Quantum and percentage of Secured vs. Unsecured borrowings.
4. Any change in promoters holding in NBFC during last FY beyond the threshold prescribed by RBI.
5. Segment wise break up and Type of loans.
6. Geographical location wise details of borrowers.
7. Segment wise details of Gross NPA.
8. Residual maturity profile wise details of assets and liabilities into several bucket.
9. Disclosure of latest ALM statements to stock exchange.

Risk factors shall be disclosed in the descending order of materiality.

It should include but not limited to:

1. Risks in relation to NCS.
2. Risks in relation to the security created in relation to the debt securities, if any.
3. Refusal of listing of any security of the issuer during last three years by any of the stock exchanges in India or abroad.
4. Limited or sporadic trading of NCS of the issuer on the stock exchanges.
5. In case of outstanding debt instruments or deposits or borrowings, any default in compliance with the material covenants such as creation of security as per terms agreed, default in payment of interest, default in redemption or repayment, non-creation of DRR, default in payment of penal interest wherever applicable.
6. If secured, any risks in relation to maintenance of security cover or full recovery of the security in case of enforcement.