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Getting material on “material” events and information

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SEBI issues consultation paper on Reg. 30 of LODR Regulations 

[This version: 15th November, 2022]

The importance of transparency and timely dissemination of material information for a listed entity needs no emphasis, since these events and information have a direct bearing on the price discovery of the securities of the listed entities and the investors’ decisions. The intent of regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) is to ensure seamless flow of information; the Regulation is complemented by Schedule III thereto, which provides an indicative list of the events or information in a listed entity that may be considered “material” and thereby, requires prompt disclosure by way of intimations to the stock exchange(s) in which the entity is listed. 

While Para A of Part A of Schedule III specifies the list of information/ events which are “deemed” material, Para B specifies a list of information/ events which are to be tested based on application of guidelines of materiality. These guidelines of materiality are provided in sub-regulation (4) of Reg 30 and are determined on the basis of the policy for determination of materiality (“Materiality Policy”) of the listed entity. The Materiality Policy of a listed entity plays a prominent role in determining the disclosure practices of a listed entity.

The Consultation Paper, while removing discretion and the scope for non-quantitative tests for determining materiality, also seeks to make several other changes in the requirement for seamless disclosures. Notably, the Consultation Paper proposes a threshold of 2% of turnover, that too, standalone, for the listed entity, as the likely impact of the event or information, whereas, as per our study  “Corporate Governance & material price sensitive information: Need for listed entities to frame effective materiality policy”, most companies either did not have any quantifiable thresholds for determination of materiality, and where they did, the threshold was mostly 10% either on a standalone or on a consolidated basis.

If the proposals in the Consultation Paper are finally implemented, we feel that there will be a lot more events calling for Reg 30 disclosures. Currently, for many companies which have listed their specified securities, it is only the events listed in Para A of Part A of Schedule III which come for disclosure on the exchanges; the rest of the events or developments remain prone to subjectivity and therefore, indecision.

The Consultation Paper will remain open for comments till 27th November, 2022. We provide a gist of the key proposals in the Consultation Paper. 

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Quarterly financial results for debt listed companies

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Snippet-Revised-Formats-for-filing-financial-information-1-1

The SEBI Circular dated 5th October, 2021 can be read here

The SEBI Circular dated 5th July, 2019 can be read here

The SEBI Circular dated 10th August, 2016 can be read here

Our article on the same can be accessed here – https://vinodkothari.com/2021/09/debt-listed-entities-under-new-requirement-of-quarterly-financial-results/

SEBI approves stricter norms for RPTs

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CS Vinita Nair | Vinod Kothari & Company

September 29, 2021

SEBI in its Board meeting held on September 28, 2021 approved the amendments in RPT framework that were proposed by the Working Group[1] (‘WG’) in January, 2020. The notification amending SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) is awaited. Certain amendments to come into force from April 1, 2023 and remaining from April 1, 2022. This write up discusses the key amendments approved by SEBI in the Board meeting held on September 28, 2021[2].

In view of the recent amendment made in Listing Regulations w.e.f. September 7, 2021 the framework for Related Party Transactions (‘RPTs’) is also applicable to a High Value Debt Listed Entity (‘HVDLE’)[3].

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Presentation on Corporate Governance for Debt Listed Entities

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Our resources can be accessed through below links:

  1. FAQs on recent amendments under the Listing Regulations – https://vinodkothari.com/2021/08/faqs-recent-amendments-listing-regulations/
  2. Articles on fifth amendment regulations:
  3. Ease of doing business: Debt listed companies slide down to unlisted companies – https://vinodkothari.com/2021/02/debt-listed-companies-slide-down-unlisted-companies/ 

Our  Book on Law and Practice Relating to Corporate Bonds and Debentures, authored by Ms. Vinita Nair Dedhia, Senior Partner and Mr. Abhirup Ghosh, Partner can be ordered through the below link:
https://www.taxmann.com/bookstore/product/6330-law-and-practice-relating-to-debentures-and-corporate-bonds

Debt listed entities under new requirement of quarterly financial results

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-Implications and actionables

Last updated on 5th October, 2021

Anushka Vohra | Deputy Manager

corplaw@vinodkothari.com

The SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2021[1] have increased the compliance burden on the debt listed entities. Ranging from introducing the corporate governance requirements on High Value Debt Listed Entities (HVDLEs)[2] to increasing the disclosure and compliance requirements on all debt listed entities, the amendment per se aims to make the current regulatory requirements stringent on the debt listed entities.

 

One significant amendment under Chapter V, which is applicable on all debt listed entities, is the requirement of submission of financial results on a quarterly basis instead of a half yearly basis, as was previously the requirement. With this write-up, we will try to understand the implications on the debt listed entities due to change in the periodicity of submission of financial results and the required actionables.

 

As per the amendment, the debt listed entities will be required to prepare the quarterly and annual financial results, as per the format specified by the Board. The Board has on October 05, 2021, specified the format[3] to be followed by the entities whose non-convertible securities are listed. Our snapshot on the same can be accessed here. It is pertinent to note that while the line items remain the same, the periodicity seems to be exactly similar to the erstwhile format which was applicable on entities that have listed their equity shares / specified securities.

A snapshot of the format is as under:

Since the time the amendment has been introduced, it was quite anticipated that the format would be similar to what was initially applicable to entities that have listed their equity shares / specified securities. The secretarial team of companies were struggling with the same, however the SEBI circular has put to rest the concerns and has, by way of a note clarified that, in case the debt listed entities do not have corresponding quarterly financial results for the four quarters ended September, 2020, December, 2020, March, 2021 and June, 2021, the column on corresponding figures for such quarters will not be applicable.

Entities with listed non-convertible securities

Consideration of financial results

Non-convertible securities include debentures which are not convertible into equity at any given time and constitute a debt obligation on the part of the issuer. Chapter V of the SEBI(Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) is applicable to entities that have listed their non-convertible securities on the stock exchange(s). Regulation 52 of the Listing Regulations deals with the preparation and submission of financial results

The extant Regulation provided that such listed entity shall submit financial results on a half yearly basis, within 45 days from the end of half year i.e; within 45 days from the end of September & March [for entities following FY April-March]. For the first half year the requirement was mandatory but SEBI provided a relaxation for second half year, whereby it was stated that such listed entity may not be required to submit unaudited financial results for the second half year, if it intimates in advance to the stock exchange(s), that it shall submit its annual audited financial results within 60 days from the end of financial year. Akin to such relaxation, SEBI provided that if such a listed entity submits the unaudited financial results within 45 days from the end of the second half year, the annual financial results may be submitted as and when approved by the board of directors.

Extant framework

Unaudited accompanied with limited review report Audited financial results + statements + Auditor’s Report (AR)
For the first half year (have to be mandatorily given) For the second half year (whether submitted / not)
Yes No Within 60 days from end of financial year
Yes Yes As soon as approved by the board

 

Now, since the periodicity has changed from half yearly to quarterly, such listed entities will be required to submit financial results within 45 days from the end of each quarter, other than the last quarter and the annual financial results within 60 days from the end of the financial year.

New framework

Unaudited accompanied with limited review report Audited financial results + statements + AR
For the first quarter* For the second quarter* For the third quarter* For the fourth quarter**
Yes Yes Yes No Within 60 days from end of financial year

*mandatorily required

**not required

 

Landscape of intimations & disclosures – understanding the actionables

It is an irrefutable fact that debt in India is mostly privately placed which primarily involves the Qualified Institutional Buyers (QIBs) and no prejudice is caused to the public at large. Keeping that in mind, the debt listed entities were treated differently from the equity listed entities and were not subject to the such stricter compliances when compared to debt listed entities.

In view of  SEBI’s approach during recent times, , it has put an end to the easy going voyage of a debt listed entity and they have been placed at par with the equity listed entities.

Regulation 50 dealing with intimation to stock exchange(s) has been amended and now require the debt listed entities to intimate to the stock exchange(s) at least 2 working days in advance, excluding the date of board meeting and date of intimation, of the board meeting where the financial results shall be considered (quarterly / annually). This Regulation 50 corresponds to Regulation 29 which is applicable to equity listed entities.

Further, in case of equity listed entities, Regulation 30 (read with Schedule III Part A) is a cumbersome Regulation as the same requires certain events to be disclosed as and when they occur. For debt listed entities, the corresponding Regulation is Regulation 51 (read with Schedule III Part B). Unlike Regulation 30, the list under Regulation 51 (i.e; under schedule III) was narrow in its scope, however, with the said amendment, the list under the Part B of Schedule III, applicable on debt listed entities has also been amended to streamline the same with what is applicable on equity listed entities.

Furthermore, while submitting the financial results (quarterly / annually) under Regulation 52, the debt listed entities have to provide certain information. Such information is captured under Regulation 52(4) and includes the following:

Exemption : Non Banking Financial Companies (NBFCs) which are registered with the RBI were exempted from making disclosure of interest service coverage ratio, debt service coverage ratio and asset cover. However, exemption from disclosure of asset cover has been withdrawn i.e; now the NBFCs that have listed their debt securities have to make disclosure of asset cover. Also, the exemption from disclosing interest service coverage ratio and debt service coverage ratio is now also extended to Housing Finance Companies (HFCs) registered with the RBI.

This new framework is now in sync with what is applicable to equity listed entities. The Regulator’s intent to subsume the compliances applicable on equity and debt listed entities seems to have been inspired by the need for more transparency and promptness of information. However, this sudden drift calls for certain actionables on the part of debt listed entities.

A summary of actionables can be represented as under:

 

Other aspects :

Entities with listed equity shares / convertible securities

The entities that have listed their equity shares / convertible securities i.e; specified securities are covered under Chapter IV of the Listing Regulations, subject to exemptions under Regulation15. These entities have to comply with Regulation 33 for preparation and submission of financial results and the timeline for the same is quarterly. There has been no change for such listed entities as far as the financial results are concerned.

However, since the amendment has made Chapter IV applicable on HVDLEs which are debt listed entities covered under Chapter V, these HVDLEs have to comply with both Regulation 33 and Regulation 52. But since the requirements in both these regulations have been streamlined, no impact will be caused on such HVDLEs.

Entities with listed equity shares & non-convertible securities OR listed convertible securities & non-convertible securities

Such entities are governed by both Chapter IV and Chapter V, thus w.r.t. financial results they have to comply with both Regulation 33 and Regulation 52. Prior to such amendment, such listed entities followed the quarterly preparation and submission of financial results, since the same is stricter. For all other provisions which are common among both chapters but vary in timelines, the one with the stricter provision needs to be followed. For instance, in case of prior intimation of board meetings where financial results shall be considered, Chapter IV provides advance intimation of 5 days, whereas Chapter V provides advance intimation of 2 working days. Clearly, the timeline of 5 days in advance is stricter, therefore such entities shall comply with the same.

Concluding remarks

The sense of ease on the debt listed entities has been undone and the Regulator is preparing to bring the equity and debt listed entities under the same blanket. The extension of Chapter IV on HVDLEs seems to be a wake up call for debt listed entities which are not HVDLEs as of now. The enhanced disclosure on all debt listed entities would nevertheless burden them, however the impact of the same is yet to be analysed.

Our snippet on the same can be accessed at – https://vinodkothari.com/2021/10/quarterly-financial-results-for-debt-listed-companies/

Our other resources on related topics –

  1. https://vinodkothari.com/2021/09/high-value-debt-listed-entities-under-full-scale-corporate-governance-requirements/
  2. https://vinodkothari.com/2021/09/corporate-governance-enforced-on-debt-listed-entities/
  3. https://vinodkothari.com/2021/09/full-scale-corporate-governance-extended-to-debt-listed-companies/
  4. https://vinodkothari.com/2021/09/presentation-on-lodr-fifth-amendment-regulations-2021/

[1] https://www.sebi.gov.in/legal/regulations/sep-2021/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-fifth-amendment-regulations-2021_52488.html

[2] A listed entity which has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of Rs. 500 crore & above as on March 31, 2021.

[3] https://www.sebi.gov.in/legal/circulars/oct-2021/revised-formats-for-filing-financial-information-for-issuers-of-non-convertible-securities_53136.html

 

Step-by-step guide for disclosure for Analysts/Investors Meet

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Do’s and don’ts to be ensured by listed companies

Updated as on September 28, 2023 , pursuant to the SEBI LODR (Second Amendment) Regulations, 2023

Brief Background

In order to disseminate information regarding performance of the company, its future prospects etc. listed companies usually conduct gatherings of analysts/investors after dissemination of quarterly results or atleast once in a year. Such meets generally include conference calls or meeting with group of investors or one-to-one meet or calls with investors or analysts, including those in the nature of walk-in. The idea behind conducting such meets is to provide transparency for the company’s performance figures, to address the queries of the analysts/investors and to ensure that the company’s information is available to the stakeholders. However, the risk of information asymmetry in such meets or gatherings is very inherent.

While the regulatory framework of SEBI i.e. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) provided for disclosure of adequate and timely information to enable investors to track the performance of a company including the information pertaining to occurrence of investors meet/conference call with analysts, however, several inconsistencies were observed in the disclosures made by the companies. For instance, some entities were not divulging the details of what transpired in such investors’ meetings and were merely disclosing the limited presentations w.r.t. the meetings. As such, minority shareholders, who did not attend these meetings, were not privy to the information shared with a select group of investors, thereby creating information asymmetry among different classes of shareholders.

Realizing this, SEBI, on November 20, 2020, came up with the Consultation Paper and recommended enhanced disclosure requirements w.r.t. post earning calls and one-to-one meets. Our write-up analyzing the said consultation paper can be viewed here.

Later, vide notification dated May 05, 2021, SEBI enhanced the disclosure requirements w.r.t. Investors’/ Analysts’ meet. In this article, the author has made an attempt to discuss the changes made in the disclosure requirements w.r.t. analyst meet step by step.

Post amendment in Listing Regulations

On May 05, 2021, SEBI amended the Listing Regulations which inter alia, covered analyst meet. Pursuant to the said amendment, the companies are required to include enhanced disclosure requirements with respect to analyst/ investors meets so as to avoid selective disclosure and information asymmetry and to ensure market integrity and to safeguard the interest of investors. The said amendments were voluntary for FY 2021-22, and became mandatory from FY 2022-23. The synopsis of the amendment is provided below:

Figure 1: Disclosure requirement for analyst meet

Regulatory requirements in case of one-to-one meet

In respect of one-to-one meet, there are no explicit disclosure requirements as such. However, considering the intent of the Listing Regulations and SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’), the following things are explicitly clear:

  • One-to-one meets, even though unregulated, should be discouraged looking at the high possibility of leakage of UPSI; and
  • Even if the entity has one-to-one meet, it cannot share any UPSI.

Regulation 8 of PIT Regulations mandates every listed company to frame a code of practices and procedures for fair disclosure of UPSI in line with the principles set out in Schedule A to PIT Regulations. Para 6 of Schedule A requires the company to ensure that information shared with analysts and research personnel is not UPSI. Para 7 provides for developing best practices to make transcripts or records of proceedings of meetings with analysts and other investor relations conferences on the official website to ensure official confirmation and documentation of disclosures made.

The PIT Regulations do not distinguish between group meets and one-to-one meets. It requires the company to record such meets and develop best practices to disclose the same on its website. The practice of recording the meet also safeguards the company officials participating in the meeting from any possible allegation of having divulged UPSI.

Whether sharing of UPSI is allowed in a group meet or one-to-one meet?

The PIT Regulations prohibit sharing of UPSI in any manner to any person including analysts/ investors and require the companies to take all required steps to ensure the same. Considering the same, the fact whether it is a group meet/ call or otherwise or whether such meet/ call was organized by the company itself or not, becomes irrelevant and the prohibition shall apply in all cases.

Therefore, there is a remote chance of sharing such UPSI until and unless the same is as per the provisions of code of fair disclosure framed by the company. Accordingly, if any UPSI is shared, legitimately in terms of the said code or otherwise, the entity will have to disclose the audio/ video recordings or the transcripts of such meeting to the stock exchange promptly.

Guidance Note of Analyst/ Institutional investors’ meet

The amendment in the Listing Regulations came up with various interpretations and ambiguities w.r.t. disclosure requirements. We have discussed such anomalies in our previous article which can be viewed here.

In order to clear the ambiguities w.r.t the disclosure requirements, BSE, vide circular dated 29th June, 2021 and July 29, 2022, provided further clarifications and recommendations. In this article, we have tried to provide step-by-step guide for disclosure on analyst meets and post earning calls. Further, we have also provided the do’s and don’ts to be ensured by the companies.

Disclosure requirements w.r.t. Analyst meets

In order to comply with the provisions of Listing Regulations in letter and spirit, the companies are required to ensure that it makes timely disclosure to stock exchanges and on their own website. The compliance requirement as per the amended provisions w.r.t. analysts/ investors meet are jotted down below:

Sr. No.CasesDisclose what?By When?Other Points to be ensured
 1.Post earning calls/ Quarterly calls, by whatever name called (after disclosure of quarterly financial results)Schedule of such meetingAtleast 2 working days in advance (excluding the date of intimation and date of the meet).Mandatory only for group meets.         
 Presentation and the audio/ video recordings of such meetingBefore the next trading day or within 24 hours from the conclusion of the meet, whichever is earlier.Mandatory for both group meets and one to one meets.To be disclosed whether conducted by a company or any other entity.To be hosted on the website of the company for minimum 5 years and thereafter as per the archival policy of the company. To be disclosed simultaneously to the stock exchange.          
 Transcripts of such meetingWithin 5 working days of conclusion of the meet.Mandatory for both group meets and one-to-one meets.To be disclosed whether conducted by a company or any other entity.To be hosted on the website of the company and preserved permanently.To be disclosed simultaneously to the stock exchange.
 2.Other Analysts/ Investors meetsSchedule of such meetingAtleast 2 working days in advance (excluding the date of intimation and date of the meet)Mandatory only for group meets.
 Presentation made in such meetingBefore the next trading day or within 24 hours from the conclusion of the meet, whichever is earlier..Mandatory only for group meets.To be disclosed on the website of the company, whether conducted by company or any other entity.To be disclosed simultaneously to the stock exchange.
 In case any UPSI is sharedAudio/video recordings or transcripts of such meetingPromptlyApplicable to both group as well as one-to-one meets.To be disclosed on the website of the company, whether conducted by a company or any other entity.To be disclosed simultaneously to the stock exchange. 

Best practices that may be adopted by companies

Disclosure of schedule of meet/ call

While making disclosure of schedules, the company may also provide the details pertaining to the meet/ call, mode of attending, details pertaining to registrations, disclaimers/ note to complete/ ease registration/ attending the call, details regarding specific platform requirements, if any, inclusions/ exclusions of audience/ participants if any, etc.

Further, a disclaimer or a confirmation may be added in the intimation stating that ‘Company will be referring to publicly available documents for discussions’ or ‘No UPSI is proposed to be shared during the meeting / call’. This will create confidence amongst the investors and will maintain sanctity of the meet / call.

Disclosure of transcripts of the meet/ call

While disclosing the transcripts of the meet/ call, the companies may also consider providing the list of attendees and record the dialogues, Q&As and assents and dissents of the analysts/ investors. Further, a confirmation may be added in the disclosure that no unpublished price sensitive information was shared/ discussed in the meeting / call.

Do’s and Don’ts to be ensured by the companies

The companies will be required to observe some crucial points while scheduling or attending analysts’/ investors’ meet, conference calls, post earning calls etc.  Briefly, the following are the do’s and don’ts:

Sr. No.Do’sDon’ts
 1.Always conduct scheduled meets.Avoid unscheduled meets.
 2.Always schedule group meets.Avoid scheduling one-to-one meet.
 3.Upload the schedule of group meets/ calls on the website atleast 2 working days in advance (excluding the date of intimation and date of the meet) and also simultaneously submit the same with the stock exchange.Do not forget to upload and send the schedule on the website and to the stock exchanges, respectively beyond the prescribed time.
 4.Upload the presentation made to analysts/ investors in the scheduled group meet on the website promptly before the next trading day or within 24 hours from the conclusion of the meet, whichever is earlier and also simultaneously submit the same with the stock exchange.Do not forget to upload and send the schedule on the website and to SE, respectively beyond the prescribed time.
 5.Ensure to make audio and video recording of the post earnings/ quarterly calls, whether conducted physically or through digital means, either conducted by company or any other entity including one- to-one meets.Do not avoid making audio/video recording of such calls irrespective the same was conducted by the company itself or by any other entity.
 6.Ensure transcripts of the post earnings/quarterly calls, whether conducted physically or through digital means, either conducted by company or any other entity including one-to-one meets.Do not avoid making transcripts of the proceedings of such calls irrespective the same was conducted by the company itself or by any other entity.
 7.Ensure that the information shared with the investors is already available in the public domain.Do not share UPSI with the investors.
 8.Maintain a silence period, if any, as provided in the code of fair disclosure framed by the entity.Discourage any sort of meets either group meet or one-to-one meets (including walk-in investors) during silence period.
 9.Upload all audio/video recordings and presentation of the post earning/ quarterly calls on the website of the company within 24 hours of conclusion of such calls or next trading day, whichever is earlier.Avoid uploading audio/video recording beyond the prescribed time.
 10.Upload all transcripts of the post earning/ quarterly calls on the website of the Company within 5 working days of conclusion of such calls.Avoid uploading transcripts of the post earning/ quarterly calls on the website of the company after 5 working days of conclusion of calls.
 11.Simultaneous to uploading audio/video recording and transcripts on the website of the company, submit the same to the recognized stock exchange.Do not forget to send audio/video recording and transcripts of the meets to the recognized stock exchange
 12.Preserve the disclosures made on the website of the Company (a)        Audio/video recording- for minimum 5 years and thereafter as per archival policy of the company; (b)   Transcripts: permanentlyDo not avoid preserving of audio/video recording and transcripts of the meets

Conclusion

The amendment in Listing Regulations and guidance note by the stock exchanges give us the clear view that the companies are required to make timely disclosure of audio/ video recordings, transcripts of post earning calls and only presentations of analyst meet to the stock exchange. Even though this seems to be the compliance burden on part of the listed companies which are already pressed with various disclosure requirements, this step is surely a welcome move as it will help the watchdog of capital markets to curb insider trading and information asymmetry.

Our other article on similar topics can be read here – http://vinodkothari.com/2020/11/sebi-proposes-enhanced-disclosures-for-meetings-with-analyst-investors-etc/

Our Podcast on the topic: https://open.spotify.com/episode/2oVRo2iEOV7cVVqYwcqb2c?si=b860b48d6f924ad6&nd=1

Our Resource Centre on LODR:

LODR Resource Centre