Legal Entity Identifier Code now mandatory for bond issuers
Ajay Ramanathan, Executive | ajay@vinodkothari.com
Background
Legal Entity Identifier (LEI) Code is a unique 20-digit code used to identify legal entities that engage in financial transactions worldwide in order to improve the quality and accuracy of financial data systems for better risk management post the global financial crisis by establishing a global reference system.
Prior to the present SEBI Circular, all non-individual borrowers availing an aggregate exposure[1] of Rs. 5 crore and above from banks and financial institutions were mandated to obtain LEI Code over the prescribed timeline.
The requirement was initially introduced by RBI vide notification dated November 02, 2017 for large corporate borrowers i.e. having total exposure of Rs. 50 crore. Further, the roadmap for borrowers with exposure from Rs. 5 crore to Rs. 50 crore was to be issued in due course. Thereafter, in April 21, 2022 RBI extended the requirement for non-individual borrowers having an aggregate exposure of Rs. 5 crore and above to obtain Legal Entity Identifier (‘LEI’) code in a phased manner[2]. Presently, non-individual borrowers with total exposure of Rs. 25 crores or more have been mandated to obtain LEI by April 30, 2023. Our snippet on the said notification may be accessed here.
Details of LEI obtained can be verified here. Rules, FAQs etc. for issuance and renewal can be accessed here.
Present circular : Applicability and Effective Date
SEBI by way of the present circular dated May 03, 2023 (‘SEBI Circular’) has mandated the issuers who have outstanding listed non-convertible securities or securitised debt instruments and security receipts as on August 31, 2023, to obtain and report LEI code on or before September 01, 2023. New issuers that issue the aforesaid securities on or after September 01, 2023 will be required to obtain LEI code and report to the Depositories at the time of allotment of ISIN. The requirement is applicable irrespective of the quantum proposed to be raised or already outstanding.
The Depositories have to map the LEI code with existing ISINs by September 30, 2023 and for future issuance, at the time of ISIN activation.
Road map of the applicability and reporting requirements
| Category of security | Relevant Regulation | Applicability | Timeline to obtain LEI | Reporting Requirements |
| Non-Convertible Security (NCS) | SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 | Issuers having outstanding listed NCS as on August 31, 2023. | On or before September 01, 2023 | To be reported in the Centralized Database of corporate bonds on or before September 01, 2023. |
| Issuers proposing to issue and list NCS on or after September 01, 2023 | Before the allotment of ISIN | To be reported in the Centralized Database of corporate bonds at the time of allotment of ISIN. | ||
| Securitised Debt Instruments (‘SDIs’) and Security Receipts (‘SRs’) | SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts), 2008 | Issuers having outstanding listed SDIs and SRs as on August 31, 2023 | On or before September 01, 2023 | To be reported to depositories on or before September 01, 2023. |
| Issuers proposing to issue and list SDI and SRs on after September 01, 2023 | Before the allotment of ISIN | To be reported to depositories at the time of allotment of ISIN. |
The requirement for issuers of municipal debt securities will be specified later.
Who shall issue the LEI Code?
The entities may obtain the LEI code from any Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF). In India, the entities are required to obtain LEI code from Legal Entity Identifier India Ltd, a subsidiary of Clearing Corporation of India Limited (CCIL) which is recognized as an issuer of LEI by RBI under the Payment and Settlement Systems Act, 2007 and accredited by GLEIF as the LOU in India for issuance and management of LEI Codes.
Concluding Remarks
SEBI has always been quite proactive in introducing new changes and bringing various reforms in the corporate bond market. The present circular adds an actionable for the issuers of NCDs, SDIs and SRs to ensure obtaining the LEI within the time prescribed. Those who have already obtained the same pursuant to the RBI circular will be required to inform the same to the Depositories to facilitate mapping with the existing ISINs.
[1]As per the RBI Notification dated April 21, 2022, “Exposure” shall include all fund-based and non-fund-based (credit as well as investment) exposure of banks/FIs to the borrower.
[2] Total exposure above Rs.10 crore to Rs. 25 crore – By April 30, 2024 and for those with total exposure above Rs. 5 crore and upto 10 crore – By April 30, 2025.
Do we have to consider Equity Investment for the purpose of Exposure? Further, does Equity Issuer has to obtain LEI while coming out with IPO, who does not fall under the abovementioned criteria?