SEBI Advisory on disclosure of material impact of Covid–19 20 May, 2020 By CS Deepak Seth


Advisory on disclosure of material impact  of  Covid–19  pandemic  on listed entities under SEBI Listing Obligations and Disclosure  Requirements)  Regulations, 2015(‘LODR Regulations/‘LODR’)
 
The Covid–19 pandemic and the consequent lockdown restrictions imposed  by  national governments  has impacted businesses  not only in India but all over the world. In view of the same, SEBI has granted several relaxations to the listed entities in terms of timelines for filing of various reports/disclosures under LODR Regulations.
 
While such a lockdown and disruption is unforeseen and  beyond  the control  of the entities, such  events  can  lead  to  distortions in  the  market due  to the gaps in  information  available about the operations  of a listed entity.  Hence, it is important for a listed entity to ensure that all available information about the impact of these events on the company and its operations is communicated in a timely and cogent manner to its investors and stakeholders.

                                                      
 
SEBI vide Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/84 dated May 20, 2020 states:
 
Various provisions  under the LODR Regulations already  require  listed  entities  to  disclose material events  which have a bearing on its performance  / operations.  These provisions  are reiterated  below:
 
1. Regulation 30(3) of the LODR specifies that  a  listed  entity  shall  make  disclosures  of events  specified  in Para  B of Part A of Schedule  III of LODR,  based on  application of the  guidelines  for  materiality.

2. Clause 6  of  Para  B  of  Part  A  of  Schedule  III  of  LODR specifies  events such as “Disruption  of operations  of any one or more units or division of the  listed entity  due  to natural  calamity (earthquake,  flood,  fire etc.),  force  majeure or events such as strikes,  lockouts etc.” that shall be disclosed upon application  of the guidelines  for materiality  referred in Regulation  30(4).
 
3. SEBI vide Circular No. CIR/CFD/CMD/4/2015 dated September 9, 2015,hasprovided further guidance to  the  listed  entities  on such  disclosures.
 
Annexure  I to the  circular, specifically provides the  details  to  be  disclosed  in  cases  of  disruptions  of  operations due to natural calamity,  force majeure  and other events.
 
Similarly,   for  non-convertibles,   Regulation 51(1)of  the  LODR requires  prompt dissemination  to  the stock  exchange(s)  of all information  having  bearing  on  the performance/operation of  the  listed  entity,  price  sensitive  information  or  any  action that  shall  affect  payment  of  interest  or  dividend.

As  per  Clause  16  of  Part  B  of Schedule  III  read  with  Regulation  51(2)  of  the  LODR,  a  listed  entity  shall  promptly inform  to  the  stock  exchange(s)  of  any  other  information  having  bearing  on  the operation/performance  of the listed entity.
 
4. It  is  observed  that  many  listed  entities  have  made  disclosures  under LODR  Regulations, primarily intimating  shutdown of operations owing to the pandemic  and resultant  lockdowns.
Some  listed  entities  have  provided  information  relating  to actions  taken towards  sanitation, safety etc.; the number of entities that have disclosed the financial impact, however, is small.
 
5. Listed entities around  the  world  have  been  making  disclosures  regarding  the impact  of  the pandemic,  including  that on  financial  condition  and  results of operations,  future  operations, capital  and  financial  resources,  liquidity,  assets,  internal  financial  control  over  financial reporting   and  disclosure   controls  and   procedures,   demand   for  products/services   etc.
 
Regulators  have  encouraged  timely  reporting as well  as  complete  and  accurate  disclosure of the impact, as far as possible.
 
6. Listed entities should endeavour to ensure that all investors have access to timely, adequate and updated  information.  Towards  this end,  entities  are encouraged  to evaluate  the impact of the CoVID-19  pandemic  on their business,  performance  and financials,  both qualitatively and  quantitatively,  to  the  extent  possible  and  disseminate  the  same.
 
An illustrative list  of information that   listed  entities   may consider   disclosing,   subject  to  the  application   of materiality is given below:
 
  • impact of the CoVID-19 pandemic on the business;
  • Ability to maintain  operations including  the  factories/units/office  spaces functioning and closed down;
  • Schedule, if any, for restarting the operations;
  • Steps taken to ensure smooth functioning of operations;
  • Estimation of the future impact of CoVID-19 on its operations;
  • Details of impact of CoVID-19 on listed entity’s-
o capital and financial resources;
o profitability;
o liquidity position;
o ability to service debt and other financing arrangements;
o assets;
o internal financial  reporting and control;
o supply chain;
o demand for its products/services;
 
  • Existing contracts/agreements where non-fulfilment  of  the  obligations  by  any  party will have significant impact on the listed entity’s business;
  • Other relevant material updates about the listed entity’s business.
The above list is only illustrative  and not exhaustive.
Further, to have continuous  information about  the impact of CoVID-19  on operations, listed entities may  provide regular updates,  as and when there are material developments
 
7. Additionally,  while  submitting  financial  statements  under  Regulation  33 of  the LODR,  listed entities may specify/include   the  impact   of  the  CoVID-19   pandemic   on  their  financial statements,  to the extent possible.

8. When  listed  entities  disclose  material  information  related  to  the  impact  of  CoVID-19,  they should   not  resort to  selective   disclosures,   keeping   in  mind   the  principles   governing disclosures  and  obligations  of  a  listed  entity  as  prescribed  in LODR Regulations,  more specifically, having  regard  to the  requirements  of Regulation  4(2)(e) of  the  LODR on disclosure and transparency.
 
Depending  on circumstances peculiar to a listed entity and on account  of  passage  of  time,  the  listed  entity  shall  revisit,  refresh,  or  update its previous disclosures.

9. This Circular shall come into force with immediate  effect. The Stock Exchanges are advised to bring the provisions  of this circular  to the notice of all listed entities  and also disseminate the same on their websites.
 
10. The  Circular  is  issued  in  exercise  of  the  powers  conferred  under  Section  11(1)  of  the ecurities  and  Exchange  Board  of  India  Act,  1992  read  with  Regulation  101 of the LODR Regulations.
 
11. This Circular is available  at www.sebi.gov.in under the link “Legal→Circulars”
 
SOURCE: Link here

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