Regulatory updates

Regulation 2(1)(a) of the Securities and Exchange Board of India (SEBI) (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) defines ‘abridged prospectus’ as:

A memorandum accompanying the application form for a public issue containing such salient features of a prospectus, as specified by SEBI.

The NCS Regulations prescribe the rules and compliances for the issuance and/or listing of non-convertible securities¹ Non-convertible securities includes non-convertible debentures and non-convertible preference shares . Regulation 32 of the NCS Regulations inter alia require the issuer and lead manager of the issue to ensure that the abridged prospectus and the application form is in the format as prescribed by SEBI.

However, currently, the NCS Regulations do not stipulate a format for the abridged prospectus² It is to be noted that prior to the SEBI (Issue and Listing of Non-Convertible Securities) (Second Amendment) Regulations, 2023 (Second Amendment regulations), issued in July 2023, Part B of Schedule I of the NCS Regulations provided a format for the abridged prospectus. However, the Second mendment regulations replaced Schedule I with common disclosures required to be made for the public as well as private issue of non-convertible securities. Accordingly, post this amendment, there is no format for the abridged prospectus in the NCS Regulations . Accordingly, in order to maintain consistency in the disclosures across documents and provide important information in the abridged prospectus, on 4 September 2023, SEBI issued a circular (the circular), thereby prescribing the format for disclosures in the abridged prospectus for public issues of non-convertible securities.

The circular also prescribes the following:

• Format of the abridged prospectus: Annexure- I of the circular provides the format of the abridged prospectus. Also, Annexure-II includes the instructions that should be provided to investors for the completion of the application form. Issuers/merchant bankers/syndicate members like brokers who are involved in the public issue should disclose the same on their websites during the period a public issue is kept open
• Availability of the abridged prospectus: A copy of the abridged prospectus should be made available on the website of the issuer, merchant bankers, registrar to the issuer and a link for downloading the abridged prospectus must be provided in the issue advertisement for public issue
• Requirement for QR Code: Issuers/merchant bankers would be required to insert a Quick Response (QR) code in the following places. The scan of such QR code would lead to the prospectus:

• The last page of the abridged prospectus
• The front page of the documents such as front outside cover page, advertisement, etc. as deemed fit by them.

• Accurate information: The issuer/merchant banker should ensure that the disclosures in the abridged prospectus are adequate, accurate and do not contain any misleading information or misstatement
• Qualitative and quantitative disclosures: The issuer/merchant bankers must ensure that the qualitative statements in the abridged prospectus are substantiated with quantitative factors as well. Further, qualitative statements should not be made which cannot be substantiated with quantitative factors.

Effective date: The circular would be applicable for all public issues opening on or after 1 October 2023.

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To access the text of the circular, please click here

Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) precludes an entity having listed specified securities from issuing further specified securities without listing them.

However, there are no similar regulations in this regard in the LODR Regulations for issuers of Non-Convertible Debt Securities (NCDS). Hence, presently, there exist entities which have simultaneously outstanding unlisted NCDS as well as listed NCDS.

This created various issues, such as information asymmetry, lack of liquidity to investors, no recourse to the established grievance redress mechanism of SEBI for private investors, differential interest rates for similar securities, possibility of mis-selling, etc..

Accordingly, to overcome these challenges, on 19 September 2023, SEBI amended the LODR Regulations through the issuance of the SEBI (LODR) (Fourth Amendment) Regulations, 2023 (the amendments). SEBI has now inserted a new regulation – Regulation 62A: Listing of subsequent issuances of non-convertible debt securities.

As per the new regulation:

• A listed entity whose NCDS are listed, must list all NCDS, proposed to be issued on or after 1 January 2024, on the stock exchange(s).
• A listed entity whose subsequent issues of unlisted NCDS made on or before 31 December 2023 are outstanding on the said date, may voluntarily list such securities on the stock exchange(s), and
• A listed entity that proposes to list its NCDS on the stock exchange(s) on or after 1 January 2024, should list all outstanding unlisted NCDs, previously issued on or after 1 January 2024 on the stock exchange(s), within three months from the date of listing of the NCDS proposed to be listed. (For example, if tranche A was issued on 1 February 2024 as an unlisted tranche of NCDS, and tranche B is being issued on 1 January 2025 as a listed tranche of NCDS, then tranche A needs to be listed within three months from 1 January 2025.)

Further, the regulation states that a listed entity would not be required to list the following securities³ A listed entity proposing to issue these securities must disclose to the stock exchange(s) on which its NCDS are listed – all the key terms of such securities, including embedded options, security offered, interest rates, charges, commissions, premium, period of maturity and such other details as may be prescribed. (exempt securities):

• Bonds issued under Section 54EC⁴ Deduction on Long Term Capital Gains (LTCG) through capital gain bonds of the Income Tax Act, 1961
• NCDS issued pursuant to an agreement entered into between the listed entity and multilateral institutions⁵ Provided that these securities are locked-in and held till maturity by the investors and are unencumbered., and
• NCDS issued pursuant to an order of any court or tribunal, or regulatory requirement as stipulated by a financial sector regulator.

A listed entity proposing to issue the exempt securities should disclose all the key terms of such securities to the stock exchanges on which its NCDS are listed.

Effective date: The amendment has come into force from the date of its publication in the Official Gazette, i.e., 19 September 2023 and would apply to those NCDs that are proposed to be issued on or after 1 January 2024, on the stock exchange(s)

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To access the text of the amendment, please click here

SEBI approved the following proposals in its board meeting dated 21 September 2023:

• Flexibility in the framework for Large Corporates (LCs) for meeting incremental financing needs through issuance of debt securities: SEBI approved the proposal to provide flexibility in the framework for LCs for meeting their financing needs from debt market through the following measures:

• As per the existing requirement, threshold for the criteria of outstanding long-term borrowings is INR100 crore or above. SEBI has now approved a higher monetary threshold limit in this regard
• The current provisions state that in case of a shortfall in the requisite borrowing, a monetary penalty/fine of 0.2 per cent of the shortfall in the borrowed amount is levied and payable. SEBI has now decided to dispense off this requirement
• SEBI has clarified that LCs are required to ensure that the provisions of the framework are met over a contiguous block of three years, and
• SEBI has further introduced certain important incentives and moderated disincentives for the LCs.

• Streamlining the framework for credit of unclaimed amounts of investors to the Investor Protection and Education Fund (IPEF) in listed entities other than companies, REITs and InvITs: SEBI had previously, in its board meeting dated 30 September 2022 approved the proposal for transfer of unclaimed amounts lying in the escrow account for more than seven years, to the IPEF for debt listed entities (other than companies) under the LODR Regulations. Consequently, the proposal to transfer unclaimed or unpaid amounts to investors in REITs and InvITs to IPEF was approved in the meeting held on 20 December 2022. With a view to further streamline the credit of unclaimed amounts and provide for claim of such amounts, SEBI has now approved amendments to the SEBI (Investor Protection and Education Fund) Regulations, 2009 (IPEF Regulations), LODR Regulations, SEBI (Real Estate Investment Trusts) Regulations, 2014 (REIT Regulations) and SEBI (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations), thereby creating a regulatory framework for segregation of unclaimed amounts of investors in the IPEF, to facilitate utilisation and processing of such amounts in the prescribed manner.
• Extension of timeline for compliance with enhanced qualification and experience requirements for investment advisers: SEBI requires individual investment advisers, principal officers of non-individual investment advisers and persons who are with investment advisers and associated with investment advice to comply with certain enhanced qualification and experience requirements by 30 September 2023. Based on the representations received from various stakeholders, SEBI has now decided to allow an extension up to 30 September 2025 , to comply with these requirements.

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To access the text of the proposals approved in the SEBI board meeting, please click here

Regulation 30(11) of the LODR Regulations requires mandatory confirmation, denial or clarification of any reported event or information in the mainstream media (which is not general in nature), and which indicates that rumours of an impending specific material event or information are circulating amongst the investing public. These requirements are applicable to top 100 listed entities by market capitalisation* w.e.f. 1 October 2023 and top 250 listed entities w.e.f. 1 April 2024.

Recently, SEBI issued a circular, thereby extending the effective date of the implementation of the aforementioned rule. The requirement would now be applicable in the following manner:

*As per market capitalisation as at the end of the immediately preceding financial year

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To access the text of the circular, please click here