SEBI

Revised Framework for Issue and Listing of Non Convertible Securities

The Securities and Exchange Board of India) revised the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, through the notification dated February 3, 2023. The Board made the following changes in the regulations in exercising the authority granted by section 30 of the Securities and Exchange Board of India (SEBI) Act, 1992. This article will discuss the key highlights incorporated in the amended regulation. 

Financial instruments like debentures and bonds that cannot be changed into equity shares of the issuing corporation are known as non-convertible securities. The process of providing and selling these financial instruments to the general public or institutional investors is referred to as the issuance of non-convertible securities. A public offering or a private placement can be used to accomplish this. The issuer uses the money it receives from the sale of these securities to finance its operations, fund investment or settle debt.

The process of listing non-convertible securities on a stock exchange, such as the (BSE) Bombay Stock Exchange or the (NSE) National Stock Exchange in India, is referred to as the listing of non-convertible securities. Listing increases their liquidity by giving investors a trading platform to trade these securities. It also helps the issuing company increase its market visibility and credibility. Non-Convertible Security issuance and listing are crucial for businesses seeking to raise money and for investors looking to diversify their holdings of financial instruments.

Key Highlight of the Amendment

In order to further amend the SEBI ( Issue and Listing of Non-Convertible Securities) Regulations, 2021, the Board, as a result of this, made the following regulations in exercise of the authority granted under section 30 of the SEBI Act, 1992: 

Extending the definition of Green Debt Security

Green debt security refers to debt security that has been issued to take money under the terms that the Board may periodically specify for use on projects and assets that fit into any of the following categories: 

1. Renewable and sustainable energy sources, such as wind and bioenergy, as well as other energy sources that make use of clean technology
2. Clean transportation options, such as mass transit,
3. And climate change adaptation measures, such as efforts to strengthen infrastructure against the effects of climate change observation and early warning systems, are all discussed below.
4. Sustainable waste management, including waste to energy, recycling and effective waste disposal
5. Energy efficiency, including efficient and green buildings
6. Sustainable land use, including sustainable agriculture afforestation and forestry
7. Conservation of biodiversity
8. Pollution prevention and control (including greenhouse gas reduction, air emission reduction, waste reduction, waste prevention, waste recycling and energy-efficient or emission-efficient waste to energy) and sectors listed in the India Cooling Action Plan initiated by the Ministry of Environment, Forest and Climate Change.
9. Circular economy adapted goods, technologies, and procedures (such as the design and introduction of recyclable, reusable and refurbished material, products and components, services and circular tools) and eco-efficient products.
10. The proceeds from the blue bonds go towards sustainable water management, including water recycling and clean water, and a sustainable marine industry that includes sustainable shipping, fully traceable sustainable seafood, sustainable shipping, ocean energy, and ocean mapping. 
11. Transition bond, which consists of funds raised for moving to a more sustainable form of operations with India’s Intended Nationally Determined Contributions.
12. Yellow bonds consist of funds raised for solar energy generation and the upstream and downstream industries associated with it.

Explanation: Intended Nationally Determined Contributions (INDCs)^[1] are the climate goals set by India in accordance with the Conference of Parties 26 in the Paris Agreement 2021, as amended from time to time.

1. Other categories, as specified from time to time by the Board.

Regulation 15 is substituted with the following:

The issuer shall send a notice regarding the redemption or recall of non-convertible securities, prior to maturity, to all eligible holders of such securities and the debenture trustees at least twenty-one days prior to the date from which such right is exercisable. The notice to the holders who are eligible shall be sent in the following manner:

The eligible holders with their email registered, addresses with the listed entity or any depository will receive the notice in electronic form (i); meanwhile, those eligible holders who have not registered their email addresses with the listed entity or any depositor will receive the notice in hard copy (ii).

The following shall be used in place of sub-regulation (7): The issuer must also send a copy of this notification to any stock exchanges listing the issuer’s non-convertible securities so they can post it on their websites.

Sub-regulation insertion in Obligation of the Issuer

Regulation 23 requires the insertion of the following sub-regulation (6) after sub-regulation (5):

Sub-regulation 6: If the issuer is a company, it must make sure that its articles of association mandate that the following person be appointed on the Board of directors as director by the debenture trustee(s) in accordance with regulation 15 of sub-regulation (1) clause (e) of the SEBI (Debenture Trustees) Regulations, 1993.

Given that this requirement must be met and shall amend its Article of Association by the issuer whose debt securities are listed as of the date the SEBI (Issue and Listing of Non-Convertible Securities) (Amendment) Regulations, 2023 are published in the official gazette, on or before September 30, 2023.

Additionally, the issuer that is in default of interest payments or principal repayment in relation to listed debt securities shall select the person nominated by the debenture trustee(s) on its Board of Directors as a director within one month from the date of receipt of a nomination from the date of publication of the SEBI (Issue and Listing of Debt Securities) Regulations or the debenture trustee, as applicable.

Insertion of Period of Subscription 

The following shall be inserted after Regulation 33 and before Regulation 34:

• A public offering of debt securities or non-convertible redeemable preference shares must remain open for at least three working days and up to ten working days.

• The issuer must extend the bidding (issue) time specified in the offer document by a minimum of three working days in the event that the price band or yield is revised. Provided that the total length of the bidding (issue) period shall not exceed the number of days allowed under sub-regulation (1).

• The issuer may, for justifications to be outlined in writing and in the event of force majeure, a banking strike, or other comparable circumstances, extend the bidding (issue) period specified in the offer document. Provided that the total length of the bidding (issue) period shall not exceed the number of days allowed under sub-regulation (1).

Other Changes

The following sub-regulation must be added to regulation 50 after sub-regulation (4):

Sub-regulation 5: When perpetual debt instruments, perpetual non-cumulative preference shares, and other similar instruments are issued, the authorised stock exchange is required to collect the regulatory fee outlined in Schedule VI to these regulations from the issuer.

The following shall be used in place of clause 1 of Schedule VI:

A non-refundable charge of 0.00025% of the issue size, a minimum of twenty-five thousand rupees and up to fifty lakh rupees of maximum shall be payable to the Board in respect of each draught offer document filed in accordance with these regulations.

Conclusion

These regulations may be referred to as the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. They take effect on the date of their publication in the official gazette. Amended by SEBI under the authority granted by section 30 of the SEBI Act, 1992.

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