Securities and Exchange Board of India
19.10.2023
Capital Market
Ease of doing business and development of corporate bond markets - revision in the framework for fund raising by issuance of debt securities by large corporates (LCs)
MANU/SMIS/0082/2023
1. Regulation 50B of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) read with Chapter XII of the NCS Master Circular2 on 'Fund raising by issuance of debt securities by large corporates' (LC Chapter), inter-alia, mandates LCs to raise a minimum 25% of their incremental borrowings in a financial year through issuance of debt securities which were to be met over a contiguous block of three years from Financial Year (FY) 2022 onwards.
2. Taking into account prevailing market conditions and representations from market participants, the framework for fund raising by issuance of debt securities by LCs is revised as specified in further paragraphs.
3. Applicability of the framework:
3.1. This framework is applicable with effect from April 01, 2024 for LCs following April- March as their financial year. This framework is applicable with effect from January 01, 2024, for LCs which follow January-December as their financial year. Explanation 1: The term "Financial Year" here would imply April-March or January- December, as followed by an entity. Thus, FY 2025 shall mean April 01, 2024 - March 31, 2025 or January 01, 2024 - December 31, 2024, as the case may be.
3.2. The framework shall be applicable for all listed entities (except for Scheduled Commercial Banks), which as on last day of the FY (i.e. March 31 or December 31):
a) have their specified securities or debt securities or non-convertible redeemable preference shares listed on a recognised Stock Exchange(s) in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations);
and
b) have outstanding long term borrowings of Rs.1000 crore or above.
Explanation 2: 'Outstanding long term borrowings' for the purpose of this framework shall mean any outstanding borrowing with an original maturity of more than one year but shall exclude the following:
i. External Commercial Borrowings;
ii. Inter-Corporate Borrowings involving the holding company and/ or subsidiary and/ or associate companies;
iii. Grants, deposits or any other funds received as per the guidelines or directions of Government of India;
iv. Borrowings arising on account of interest capitalization; and
v. Borrowings for the purpose of schemes of arrangement involving mergers, acquisitions and takeovers.
and
c) have a credit rating of "AA"/"AA+"/AAA ", where the credit rating relates to the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in.
Explanation 3: In case a listed entity has multiple ratings from multiple rating agencies, the highest of such ratings shall be considered for the purpose of this framework.
4. Framework.--
4.1. A listed entity, fulfilling the criteria as specified at paragraph 3.2 above, shall be considered as a "Large Corporate" (LC).
4.2. An LC shall raise not less than 25% of its qualified borrowings by way of issuance of debt securities3 in the financial years subsequent to the financial year in which it is identified as an LC.
Explanation 4: For the purpose of this framework, the expression "qualified borrowings" shall mean incremental borrowing between two balance sheet dates having original maturity of more than one year but shall exclude the following:
i. External Commercial Borrowings;
ii. Inter-Corporate Borrowings involving its holding company and/ or subsidiary and/ or associate companies;
iii. Grants, deposits or any other funds received as per the guidelines or directions of Government of India;
iv. Borrowings arising on account of interest capitalization; and
v. Borrowings for the purpose of schemes of arrangement involving mergers, acquisitions and takeovers.
It is also clarified that the qualified borrowings for a FY shall be determined as per the audited accounts for the year filed with the Stock Exchanges.
4.3. For an entity identified as a LC, the following shall be applicable:
(a) From FY 2025 onwards, the requirement of mandatory qualified borrowing by an LC in a FY shall be met over a contiguous block of three years. Accordingly, for listed entities following April-March/January-December as their financial year, a listed entity shall be identified as an LC, as on last day of March 31, FY "T-1"/ December 31, FY "T-1" and shall have to fulfil the requirement of incremental borrowing for FY "T", over FY "T", "T+1" and "T+2".
(b) If at the end of three years i.e. last day of FY "T+2", there is a surplus in the requisite borrowings (i.e. the actual borrowings through debt securities is more than 25% of the qualified borrowings for FY "T"), the following incentives shall be available to the LC:
(i) Reduction in the annual listing fees of FY "T+2" pertaining to debt securities or non-convertible redeemable preference shares as specified in Table I of Annex-I to this circular; and
(ii) Credit in the form of reduction in contribution to the Core Settlement Guarantee Fund (SGF) of LPCC as specified in Table II and Table III of Annex-I to this circular.
(c) If at the end of three years i.e. last day of FY "T+2", there is a shortfall in the requisite borrowings (i.e. the actual borrowings through debt securities is less than 25% of the qualified borrowings for FY "T"), a dis-incentive in the form of additional contribution to the core SGF shall apply as specified in Table IV and Table V of Annex-I to this circular.
Explanation 5: The actual borrowing done through issuance of debt securities by a LC in FY "T", shall first get adjusted with the deficit of the FY "T-2" if any, and further, against the deficit of FY "T-1" if any. The remaining amount shall get adjusted against the mandatory borrowings for FY "T". This will also help to minimize the disincentive, if any, that may accrue due to shortfall in the borrowings. The same is explained by way of an illustration in Annex-II to this circular.
5. Responsibilities of Stock Exchanges.--
5.1. Pursuant to submission of financial results by listed entities as per regulations 33 and 52 of LODR Regulations, the Stock Exchanges shall,
a. by June 30, for LCs following April-March as their financial year or
b. by March 31, for LCs following January-December as their financial year, as applicable;
determine the list of LCs for the financial year. The Stock Exchanges shall co-ordinate and release a uniform list of LCs for the financial year and place the same on their websites. They shall also notify listed entities so identified as LCs by email, to enable them to comply with the requirements.
5.2. Based on the financial results submitted by LCs, the Stock Exchanges shall, in co- ordination with each other, calculate the incentive or dis-incentive as on the last day of FY "T+2" for the block starting FY "T". For LCs following April-March as their financial year, the incentive or dis-incentive shall be calculated as on March 31, FY "T+2" for FY "T". Similarly, for LCs following January-December as their financial year, the incentive or dis-incentive shall be calculated as on December 31, FY "T+2" for FY "T". The Stock Exchanges shall intimate the same to the LCs as follows:
a. by May 31st for LCs following April-March as their financial year or
b. by February 28th/29th for LCs following January-December as their financial year, as applicable.
5.3. As regards the incentive/ dis-incentive with respect to the contribution to the core SGF, the Stock Exchanges shall share relevant information with the LPCC by May 31st for LCs following April-March as their financial year or by February 28th/29th for LCs following January-December as their financial year, as applicable.
5.4. The Stock Exchanges shall make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions in coordination with one another to achieve uniformity in approach.
5.5. The Stock Exchanges shall put in place necessary systems and infrastructure for implementation of this circular.
6. Responsibilities of the LPCC.--
The LPCC shall make changes and put in place necessary infrastructure and system for LCs to comply with the provisions of incentive and dis-incentive w.r.t contribution to the core SGF. They shall also co-ordinate with the Stock Exchanges to ensure that LCs comply with these provisions.
7. Requirements for LCs identified based on the erstwhile criteria4.--
In order to bring the existing framework in line with this circular for the LCs that were identified based on the erstwhile criteria as on December 31, 2020/ March 31, 2021, December 31, 2021/ March 31, 2022 and December 31, 2022/ March 31, 2023, the following dispensations are provided:
7.1. Clause 2.2(d) of Chapter XII of the NCS Regulations stands deleted.
7.2. Clause 3.3(b) of Chapter XII of the NCS Regulations stands deleted
7.3. The aforesaid LCs shall endeavour to comply with the requirement of raising 25% of their incremental borrowings done during FY 2022, FY 2023 and FY 2024 respectively by way of issuance of debt securities till March 31, 2024, failing which, such LCs shall provide a one-time explanation in their Annual Report for FY 2024.
8. The circular shall come into force with immediate effect and shall replace the present Chapter XII of the NCS Master Circular w.e.f. the FY 2025.The provisions of this circular shall be appropriately incorporated in Chapter XII of the NCS Master Circular.
9. This Circular is issued in exercise of powers conferred under
9.1. Section 11(1) of the Securities and Exchange Board of India Act, 1992;
9.2. Regulation 55 (1) of the NCS Regulations; and
9.3. Regulation 101 of the LODR Regulations.
10. This Circular is available on SEBI website at www.sebi.gov.in under "Legal Framework".
Tags : Development Corporate bond markets Revision
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