Fund Raising by Issuance of Debt Securities by Large Entities By CS Priya Dua


Applicability:

All listed Company (Except for Scheduled Commercial Banks) which on the last date of Financial year:

  1. have their specified securities or debt securities or non-convertible redeemable preference share, listed on a recognized stock exchange and
  2. have an outstanding long term borrowing of Rs 100 crores or above.
(Meaning of Long term Borrowing: any outstanding borrowing with original maturity of more than 1 year excluding external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies) and

  1. have a credit rating of "AA and above", where credit rating shall be of the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in; and in case, where an issuer has multiple ratings from multiple rating agencies, highest of such rating shall be considered for the purpose of applicability of this framework.
**A Listed Company fulfilling the above criteria shall be considered as Large Corporate (LC) and such an LC shall raise not less than 25% of its incremental borrowings, during the financial year subsequent to the financial year in which it is identified as an LC, by way of issuance of debt securities, as defined under SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
 
Meaning of Incremental Borrowing: 

"incremental borrowings" shall mean any borrowing done during a particular financial year, of original maturity of more than 1 year, irrespective of whether such borrowing is for refinancing/repayment of existing debt or otherwise and shall exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies).
 
For an entity identified as an LC, the following shall be applicable:

For FY 2020 and 2021, the requirement of meeting the incremental borrowing norms shall be applicable on an annual basis. Accordingly, a listed entity identified as an LC on last day of FY 2019 and FY 2020, shall comply with the requirement as laid down under (**), by last day of FY 2020 and FY 2021, respectively.
 
In the case where an LC is unable to comply with the above requirement:  

it shall provide an explanation for such shortfall to the Stock Exchanges, in the manner as prescribed.
 
Also from Financial Year 2022, the requirement of mandatory incremental borrowing by LC in an FY will need to be made by a continuous period of 2 years.
 
Penalty: If at the end of two years there is a shortfall in the requisite borrowing (i.e. the actual borrowing through debt securities is less than 25% of the incremental borrowings for FY), a monetary penalty/fine of 0.2% of the shortfall in the borrowed amount shall be levied and the same shall be paid to the Stock Exchange(s).

Time limit of Disclosure requirement of Large Entities:

  1. Within 30 days from the beginning of the FY, disclose the fact that they are identified as an LC in the format as provided at Annexure A of link **duly certified by Company Secretary and Chief Financial Officer of the LC and shall also form the part of Audited Annual Financial Results of the entity.
  2. Within 45 days of the end of the FY, the details of the incremental borrowings done during the FY, in the formats as provided at Annexure B1 and B2 of link.

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