Listing of Corporate Debts By Mehul Solanki



INTRODUCTION:

A vibrant capital market, both equity and bond, has to play an increasingly pivotal role to facilitate fund mobilization for sustaining India’s projected economic growth momentum. Debt markets are markets for the issuance, trading, and settlement of fixed-income securities' various types and features. Fixed income securities can be issued by any legal entity like central and state governments, public bodies, statutory corporations, banks and institutions and corporate bodies.  

The debt market in India comprises mainly of two segments viz., the Government securities market consisting of Central and State Governments securities, Zero-Coupon Bonds (ZCBs), Floating Rate Bonds (FRBs), T-Bills and the corporate securities market consisting of FI bonds, PSU bonds, and Debentures/Corporate bonds. Government securities form a significant part of the market in terms of outstanding issues, market capitalization and trading value.

BACKGROUND:

A vibrant capital market, both equity and bond, has to play an increasingly pivotal role to facilitate fund mobilization for sustaining India's projected economic growth momentum. The corporate bond market becomes even more critical now, given the stress on the banking sector.

Keeping in view the more prominent complementary role that corporate bonds have to play alongside bank credit for financing economic activities, several policy measures have been taken by the Government and the Regulators to develop a vibrant corporate bond market.

Some essential measures include:

  • Framework for allowing banks to provide Partial Credit Enhancement for enhancing creditworthiness of corporate bonds;

  • Information Repositories developed by Exchanges and Depositories to provide consolidated information on primary issuance and secondary market trades in corporate bonds;

  • Electronic Book Building mechanism for providing enhanced transparency in issuance of debt securities on private placement basis;

  • Enhanced standards for Credit Rating Agencies for timely monitoring of credit quality of bonds;

  • Specifications related to International Securities Identification Number (ISINs) for debt securities to encourage liquidity and reduce fragmentation of issues;

  • Tri-Party Repo trading on Exchanges to enhance liquidity and price discovery in corporate bonds;

  • Time is taken for a listing of public issue of bonds reduced from 12 days to 6 days; and

  • They are doing away with a 1% security deposit requirement for the public issue of debt securities.

ELECTRONIC ISSUANCE OF DEBT SECURITIES:

All the investors applying in a public issue shall use only the Application Supported by Blocked Amount (ASBA) facility to make payment, i.e. writing their bank account numbers and authorizing the banks to make payment in case of allotment signing the application forms.

An investor, intending to subscribe to a public issue, shall submit a completed bid-cum application form to Self-Certified Syndicate Banks (SCSBs), with whom the bank account to be blocked is maintained or any of the following intermediaries:

  • A syndicate member (or sub-syndicate member)

  • A stockbroker registered with a recognized stock exchange

  • A depository participant ('DP')

  • A registrar to an issue and shares transfer agent ('RTA').

CONDITIONS FOR PUBLIC ISSUE:

  • The issuer or the person in control of the issuer or its promoter or its director is restrained or prohibited or debarred by SEBI from accessing the securities market or dealing in securities; or the issuer or any of its promoters or directors is a willful defaulter, or it is in default of payment of interest or repayment of the principal amount in respect of debt securities issued by it to the public, if any, for more than six months.

  • It has made an application to one or more recognized stock exchanges to list such securities therein. If the Application is made to more than one recognized stock exchange, the issuer must choose one of them with nationwide trading terminals as the designated stock exchange.

  • It has obtained in-principle approval for the listing of its debt securities.

  • Credit rating, including the unaccepted ratings obtained from more than one credit rating agencies, registered with SEBI, shall be disclosed in the offer document.

  • The issuer cannot issue debt securities for providing loans to or acquiring shares of any person who is part of the same group or under the same management.

CONDITIONS FOR PRIVATE PLACEMENT:

An issuer may list its debt securities issued on a private placement basis on recognized stock exchange subject to the following conditions:

  • The issuer has issued such debt securities in compliance with the provisions of the Companies Act, 2013, rules prescribed thereunder and other applicable laws;

  • Credit rating has been obtained in respect of such debt securities from at least one credit rating agency registered with SEBI;

  • The debt securities proposed to be listed are in dematerialized form;

  • The disclosures as provided in regulation 21 have been made;

  • The issuer shall choose one of them as the designated stock exchange where the Application is made to more than one recognized stock exchange.

OBLIGATIONS OF THE ISSUER, LEAD MERCHANT BANKER:

  • The issuer ensures that all the material facts disclosed in the offer documents issued or distributed to the public are true, fair, and adequate. There are no misleading or untrue statements or misstatements in the offer document.

  • The Merchant Banker shall ensure verify and confirm that the disclosures made in the offer documents are accurate, fair and adequate, and the issuer complies with these regulations and all transaction-specific disclosures specified in section 26 of the Companies Act, 2013.

  • The issuer shall treat the applicant fairly and equitably as per the procedures specified by SEBI.

  • Regarding assignments undertaken for the issue, offering and distributing securities to the public, the intermediaries shall be responsible for the due diligence.

  • A person shall not employ any device, scheme or artifice to defraud in connection with issue or subscription or distribution of debt securities that are listed or proposed to be listed on a recognized stock exchange.

  • The issuer and the merchant banker shall ensure that the security created to secure the debt securities is adequate to ensure 100% asset cover for the debt securities.

RIGHT TO RECALL OR REDEEM BEFORE MATURITY:

An issuer making a public issue of debt securities may recall such securities before maturity date at his option (call) or provide such right of redemption before the maturity date (put) to all the investors or only to retail investors, at their option, subject to the following:

  • Such right to recall or redeem debt securities before the maturity date is exercised following the terms of issue and detailed disclosure in this regard is made in the offer document including date from which such right is exercisable, period of exercise (which shall not be less than three working days), redemption amount (including the premium or discount at which such redemption shall take place);

  • The issuer or investor may exercise such right concerning all the debt securities issued or held by them respectively or concerning a part of the securities so issued or held;

  • In case of the partial exercise of such right following the terms of the issue by the issuer, it shall be done on a proportionate basis only;

  • No such right shall be exercisable before the expiry of twenty-four months from the date of issue of such debt securities;

  • Issuer shall send notice to all the eligible holders of such debt securities at least twenty-one days before the date from which such right is exercisable;

  • Issuer shall also provide a copy of such notice to the stock exchange where such debt securities are listed for broader dissemination and shall make an advertisement in the national daily having wide circulation indicating the details of such right and eligibility of the holders who are entitled to avail such right;

  • Issuer shall pay the redemption proceeds to the investors along with interest due to the investors within fifteen days from the last day within which such right can be exercised;

  • Issuer shall pay interest at the rate of fifteen per cent per annum for the period of delay if any,

  • After completing the exercise of such right, the issuer shall submit a detailed report to the stock exchange for public dissemination regarding the debt securities redeemed during the exercise period and details of redemption thereof.

DISCLAIMER:

Complete care is taken to prepare this article; however, inadvertently, the Author shall not be held responsible for any such cause if any errors occur. The Content published is only for educational purposes and shall not be construed as the rendering of any Professional Advice in any manner whatsoever. Readers must exercise their judgment and refer to the source before any implementation. Further, the Content is an original work of the Author and may be used only after written permission.  

Bibliography:

https://www.startupindia.gov.in/content/sih/en/looking_for_funding.html

https://cleartax.in/s/debt-funds

https://www1.nseindia.com/corporates/content/debt_pvt_plcment.htm

About the firm:

Jaya Sharma and Associates is a firm of Practicing Company Secretaries located in Mumbai, Maharashtra, India that specializes in solving the complexities of corporate laws and company secretarial practice promptly and correctly with an attention to detail and personal services catering to pan-India and foreign clients. The peer reviewed firm specializes and adheres to the parameters of quality control systems and guidelines as prescribed by the regulatory body.

FCS Jaya Sharma-Singhania, Founder & Mentor has been listed as one of the Top Best Ten Women Legal Consultants in India 2021 by Women Entrepreneur Magazine.


Mehul Solanki
is a commerce and law graduate having more than four years of working experience in company law compliances, setting-up companies, compliances of listed companies and not-for-profit companies. He is currently Research Associate & Start-up Consultant at Jaya Sharma & Associates and has authored various articles on corporate and securities law related topics which have been published on various websites, blogs and professional magazines including Compliance Calendar, Taxguru, Legal Service India and journal of ICSI etc. 

https://www.linkedin.com/in/mh9/


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