Private placement of debt securities – An analysis with regard to the draft SEBI regulation (issuance and listing of non-convertible securities), 2021 – Company law / commercial law

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A. Presentation:

Securities and Exchange Board of India (“SEBI”, “Board”) in its consultation document dated May 19, 2021, proposed to merge the SEBI Regulations on the Issuance and Listing of Debt Securities, 2008 (hereinafter referred to as “ILDS regulations”) and the SEBI regulations (issuance and listing of non-convertible preference shares) of 2013 (hereinafter referred to as “NCRPS regulations”) in a single consolidated regulation – the SEBI regulation (issue and listing of non-convertible securities) ), 2021 (hereinafter referred to as “NCS Regulation”). This decision aims to ease the compliance burden on listed entities and provide a consistent approach by harmonizing the laws relating to non-convertible securities that are currently set out in the Companies Act, 2013 (“Companies Act”), SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI (Debenture Trustees) Regulations, 1993 SEBI (Issue of Capital and Disclosure Requirements), 2018; and various circulars issued by SEBI.

In this article, we will focus on the main amendments and recommendations proposed specifically in the area of ​​private placement of debt securities.

B. Differentiation of “debt securities” from “perpetual debt securities”:

SEBI recognized that these two terms were used interchangeably by market participants and, therefore, to distinguish between the two, it is proposed to modify the definition of “debt securities” by adding the words “period of time”. ‘fixed term’. The proposed amended definition will read as follows:

“Debt Securities” means non-convertible fixed-maturity debt securities that create or recognize debt and include bonds, bonds or any other security, whether or not they constitute a charge on assets / property, but exclude receipts of securities, securitized debt instruments, money market instruments regulated by the Reserve Bank of India and bonds issued by the government or other body as may be specified by the Board;

C. Green debt securities:

The NCS regulation introduces a new definition of “green debt security” which aims to separately categorize debt securities for fundraising for projects relating to renewable energy, sustainable development, waste management, waste management. water, land use, etc. However, the NCS regulation does not provide for any other conditionality regarding the issuance of these green debt securities. The proposed definition is reproduced below for convenience:

“Green Debt Security” means a debt security issued to raise funds to be used for projects and / or assets falling within one of the following broad categories, subject to conditions which may be specified by the Board of from time to time to time .:

I. Renewable and sustainable energy, including wind, solar, bioenergy and other energy sources using clean technologies;

ii. Clean transport, including public / public transport;

iii. Sustainable water management, including clean and / or potable water, water recycling;

iv. Adaptation to climate change;

iv. Energy efficiency, including efficient and green buildings;

v. Sustainable waste management, including recycling, energy recovery, efficient waste disposal;

vii. Sustainable land use, including sustainable forestry and agriculture, afforestation;

viii. Conservation of biodiversity; Where

ix. any other category as may be specified by the Board from time to time.

D. Issuers eligible under Regulation 6:

The NCS Regulation provides for a stricter eligibility criterion for issuers for private placement of debt securities in accordance with existing standards for public issuance of debt securities. Therefore, companies would become ineligible to issue private debt securities under the following circumstances:

  • if the issuer, any of its promoters, group of promoters or directors are prohibited from access to the securities market or from securities transactions by the Board for the duration of the ban.
  • whether any of the promoters or full-time directors of the issuer is a promoter or all[1]temporary director of any other company which is prevented from accessing the securities market or trading securities by the Board, with the exception of:

(i) in the case of a person who has been appointed a director solely by virtue of an appointment by a debenture trustee of another company;

(ii) when the exclusion period is over.

  • whether any of its promoters or administrators is a fugitive economic offender under section 12 of the Fugitive Economic Offenders Act, 2018

E. Applicability and period reduction for call and put options under regulation

19:

Currently, the ILDS Regulation defines the procedure for exercising call and put options in the event of debt securities issued solely on the basis of a public issue. It is now proposed to extend it to private debt securities. In addition, the current provisions of the ILDS regulation provide an option for an issuer to exercise the option to recall the debt securities prior to maturity and an option for the investor to exercise the put option to redeem the debt securities. debt securities before maturity, after twenty-four months. issuance of debt securities. This provision is considered restrictive and in order to offer more flexibility to the issuer as well as to the investor, it is now proposed to reduce the period indicated from twenty-four months to twelve months under the NCS regulation. In addition, it has been prescribed that any partial exercise of such a right must be carried out on a proportional basis only.

F. E-Book Provider (EBP) Platform Mechanism:

The e-book provider platform (EBP) mechanism as prescribed in SEBI / HO / DDHS / CIR / P / 2018/05 of January 5, 2018, currently works for the transparent issuance of debt securities on the basis of a private placement. This platform is provided by one or more recognized exchanges or a recognized depository and facilitates a price discovery mechanism for private placements, mainly over-the-counter. Currently, it applies to private placements of debt securities of INR 200 crore and above in any given financial year. Taking into account the recommendations of the SEBI Corporate Bonds and Securitization Advisory Committee, the NCS Regulation proposes that any issue of eligible securities offered for listing in an amount equal to or greater than INR 100 crore during a financial year is carried out via the EBP platform.

In addition, it is recommended to revise the current deadline for filing a placement note on the EBP platform from two working days before the opening date of the issue to five working days before the opening date of the issue. issuance for issuers accessing the EBP platform for the first time.

The proposed NCS regulation is indeed a welcome step in consolidating, aligning and improving the readability of the law on “pure-play” debt and quasi-debt financing and towards the ease of making debt. business. Issuers and other market participants should benefit from the potentially reduced compliance burden and clarity offered by the proposed merger of all circulars into one operational circular by the regulator. Although the proposal is well-intentioned, efficiency-inducing and espouses a clearly delineated and harmonized legislative text, industry reaction and public discourse are expected and it remains to be seen whether the resulting regulations meet the regulator’s objectives. . In any case, legislative intent must be supported by broad executive cooperation and operational clarity for successful implementation.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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John A. Bogar