SEBI

Requirements for Listed Entities for Listing NCDs or NCRPS

The SEBI through a notification on 14^th November, has amended the SEBI LODR Regulation 2015 by inserting two new regulations. The said regulation has made it mandatory that the listed entities who intend to provide a scheme of arrangement for listing NCDs or NCRPS shall obtain NOC from the stock exchanges before making any application for sanction to the NCLT. Henceforth, in pursuant to the said notification, the SEBI issued a subsequent circular on 17th November 2022, which inter alia provides the operational aspects in the form of requirements with respect to the scheme of arrangement by entities who have listed or are involved in listing non-convertible debenture or non-convertible redeemable preference shares.

The entities who have raised money by way of public issue or private placement of NCDs or NCRPS shall need to comply with the requirements discussed in the article prior to filing the scheme of arrangement with the NCLT^[1] or National Company Law Appellate Tribunal.

What are the requirements for choosing Designated Stock Exchange?

The requirements are choosing a designated stock exchange are:

• The listed entities shall choose a designated stock exchange with a nationwide trading terminal to coordinate with SEBI.
• The entities solely listed on the recognised stock exchange shall obtain in-principle approval for listing NCDs or NCRPS on any stock exchange with a nationwide trading terminal.
• The stock exchange has a nationwide trading terminal that shall offer a platform for the circulation of information on schemes and other documents. For undertaking such activities, the stock exchange may charge reasonable fees.

What documents are required to be submitted?

The requirements for submitting documents by the listed entities for listing NCDs or NCRPS are:

• Draft Scheme of arrangement or amalgamation or merger or reconstruction etc.
• Valuation report and an undertaking that no event has occurred during the period of filing documents related to the scheme and the period under consideration for valuation that may impact the valuation.
• Fair opinion on assets valuation done by the registered valuer for the entities involved in the scheme of arrangement from a SEBI-registered Merchant banker. For this purpose, the registered valuer and the merchant banker shall be independent parties.
• A report from the board of directors of the listed entity indicating approval of the draft scheme by considering the valuation report and ensuring that such scheme does not in any way affect the holders of the NCDs or NCRPS. The report shall further include comments on the following:
  • Any impact that may affect the holders of NCDs or NCRPS
  • Any protection offered to the holders of NCDs or NCRPS
  • In case of any dissent, an Exit offer available to the holders of NCDs or NCRPS
• Audited financial records for the last 3 years of the unlisted entity.
• Certificate of Auditor
• Detailed compliance report duly certified by CS, CFO & MD signifying compliance with various regulatory requirements and all accounting standards
• Declaration from listed entity in case of any default in the listed debt obligation that forms part of the scheme.
• Declaration from listed signifying that its promoters or directors are not a wilful defaulter.
• NOC form Debenture trustee.

What are the Conditions for the scheme for arrangement between Listed and Unlisted entities?

The following conditions are to be satisfied in case of a scheme of arrangement between listed and unlisted entities for listing NCDs or NCRPS.

• The listed entities shall include information related to the unlisted entities in the format provided in Part B of Schedule I of the SEBI (Issue & Listing of Non-convertible securities) Regulations 2021 in the notice or proposal sent to the holders of NCDs or NCRPS at the time of obtaining approval of the scheme.
• The accuracy & adequacy of such information shall be certified by the SEBI registered merchant banker.
• The disclosure of information shall also be sent to the stock exchange for uploading on their website.
• Unlisted entities are eligible for merger with listed entities only if the listed entities are listed on a stock exchange that has a nationwide trading terminal.

What is the requirement for a Valuation Report?

The listed entities are required to submit a valuation report with the stock exchange that is to be carried by a registered valuer with respect to the scheme of arrangement for listing NCDs or NCRPS. A registered valuer is a person who possesses such qualifications and experience and is a member of a recognised organisation enumerated in Section 247 of the Companies Act 2013.

Further, in case of a scheme of arrangement between listed and unlisted entities for listing NCDs or NCRPS, the valuation report shall be submitted by the listed entity on behalf of the unlisted entity.

What is the requirement for a Certificate of Auditor?

The draft scheme of arrangement for listing NCDs or NCRPS shall accompany the certificate of auditor, which certifies that:

• The payment or repayment capability of the resultant entity.
• The accounting treatment in the scheme complies with all the accounting standards specified by the central government under Section-133 of the Companies Act 2013, read with rules or the accounting standards issued by the ICAI.
• In case if the above accounting treatment is not in conformity with the accounting standards, the entity shall disclose the reasons for such deviations. Further, mere disclosure of deviation shall also not implies that the accounting treatments are in conformity with the accounting standards.

What is the requirement for submission of a Report of complaints or Comments?

The requirements for reporting of complaints or comments are:

• The listed entities must submit a report to the stock exchange on the complaint or comments received by the listed entity on the draft scheme of arrangement from various sources.
• The listed entity must submit the report on complaints or comments to the stock exchange on the expiry of 10 days from the date of filing the draft scheme with the stock exchange and publishing the same on their and listed entity’s website.

What is the requirement for submitting a report on unpaid dues or Fines or Penalties?

The listed entities shall make sure that all the dues or fines or penalties imposed by the Stock exchanges or SEBI or the Depositories are paid before the filing of the draft scheme of arrangement for listing NCDs or NCRPS with the designated stock exchange. Further, the draft scheme of arrangement shall contain the details of such unpaid dues or fines or penalties in the format prescribed under the circular.

What information is to be disclosed on the website?

The disclosures under the requirements are:

• The listed entities shall publish a draft scheme of arrangement for listing NCDs or NCRPS and other necessary documents on its website simultaneously while filing it with the stock exchange.
• The listed entities shall publish the NOC on its webiste withn 24 hours of obtained it from the Stock exchange.

What are the requirements for sending a Notice or Proposal to the holders of NCDs or NCRPS?

The requirements in regard to the notice or proposal are:

• The listed entity is required to send NOC of the stock exchange through E-mail or Speed Post to the holders of NCDs or NCRPS.
• The listed must make sure that the notice or proposal contains the pre or post-arrangement details in respect of the following:
  • Expected Debt Structure
  • Fairness opinion
• The listed entity shall upload the report on Complaints or comments received by it on the draft scheme of arrangement on the company’s website and the stock exchange.

What disclosures are to be made in the Draft Scheme of Arrangement?

The listed entity is required to disclose certain information in the draft scheme of arrangement for listing NCDs or NCRPS, including but not limited to the following:

• Face Value
• The terms relating to the payment of dividends or coupons, such as frequency etc.
• Credit Rating
• Tenure or Maturity
• The terms of redemption, amount, date, redemption premium or discount & early redemption scenarios etc.
• Any protection offered to the holders of NCDs or NCRPS.
• Any exit offer presented to dissenting holders of NCDs and NCRPS.
• Other embedded features such as the put option, dates, call option, dates, notification times etc.
• Any other terms of the instrument
• Latest audited financial records provided that the financial statements shall not be later than 6 months before the filing date.
• A certificate of audit certifying the payment or repayment capability of the resultant entity.
• Fairness Report
• Any other information

Misstatement or False Information: If the listed entity deliberately made a misstatement or provided false information in the disclosure of the draft scheme of arrangement, in that case, the listed entity shall be held liable for the punitive action according to the rules and regulations.

No changes after filing: The listed entity is not allowed to make any changes in the draft scheme of arrangement after filing it with the stock exchange, provided the said changes are mandated by the regulators or authorities or tribunals could be made without the written consent of the SEBI.

What are the requirements for taking approval of holders of NCDs or NCRPS through E-Voting?

The listed entities shall ensure that the holders of NCDs or NCRPS shall be provided with an E-voting facility wherever there is a requirement of approval of the holders of NCDs or NCRPS in respect of the scheme of arrangement for listing NCDs or NCRPS submitted with the NCLT for sanction. Further, this facility shall be provided after making all the disclosures in the notice.

Conclusion

The amendment in the SEBI LODR Regulations 2015 has brought changes in the operational aspect to the listed entities who want to list or are involved in listing NCDs or NCRPS. The new regulation has brought changes in the requirements of the listed entity, which requires the listed entity to obtain NOC from the stock exchanges. Further, apart from the requirements enumerated under regulations, the entity is required to comply with the additional requirements while preparing a draft scheme of arrangement for listing NCDs or NCRPS, such as choosing a designated stock exchange, fairness opinion by a registered valuer, valuation report, certificate of auditor, report of complaint so comments or unpaid dues or fines or penalty.

Read Our Article: SEBI (LODR) (Fifth Amendment) Regulations 2021