ISSUE OF DEBT SECURITIES

ISSUE OF DEBT SECURITIES :
Conditions

An issuer can not make any public issue of debt securities if –

1. The issuer or the person in control, or its promoter, has been restrained or prohibited or debarred by SEBI from accessing the securities market or dealing in securities and such direction or order is in force.

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

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

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

5. The issuer can not issue debt securities for providing loan to or acquisition of shares of any person who is part of the same group or who is under the same management.

Appointment of Intermediaries

1. It shall enter into an arrangement with a depository registered with SEBI in accordance with the Depositories Act, 1996 and regulations made there under.

2. The issuer should appoint one or more merchant bankers registered with SEBI at least one of whom shall be a lead merchant banker.

3. The issuer is required to appoint one or more debenture trustees in accordance with the provisions of Section 71 of the Companies Act, 2013 and SEBI (Debenture Trustees) Regulations, 1993.

Disclosures of Material Information

1. The offer document must contain all material disclosures which are necessary for the subscribers of the debt securities to take an informed investment decision. The offer document contains the following:

a) the disclosures specified in Section 26 of the Companies Act, 2013;

(b) disclosure specified in Schedule I of these regulations;

2. The amount of minimum subscription which the issuer seeks to raise and underwriting arrangements shall be disclosed in the offer document.

Filing
The issuer shall file a draft offer document with the designated stock exchange through the lead merchant banker and also forward a copy of the draft & final offer document to SEBI.

Filing of Shelf Prospectus

(1) The following companies or entities may file shelf prospectus under section 31 of Companies Act, 2013 for public issuance of their debt securities,-

(a) Public financial institutions as defined under clause (72) of section 2 of the Companies Act, 2013, and scheduled banks as defined under clause (e) of section 2 of the Reserve Bank of India Act, 1934; or

(b) Issuers authorized by the notification of Central Board of Direct Taxes to make public issue of tax free secured bonds, with respect to such tax free bond issuances; or

(d) Non-Banking Financial Companies registered with Reserve Bank of India and Housing Finance

Companies registered with National Housing Bank complying with the following criteria:

(i) having a net worth of at-least Rs.500 crore, as per the audited balance sheet of the preceding financial year;

(ii) having consistent track record of distributable profit for the last three years;

(iii) securities issued under the shelf prospectus have been assigned a rating of not less than “AA-” category or equivalent by a credit rating agency registered with SEBI;

(iv) no regulatory action is pending against the company or its promoters or directors before the Board, Reserve Bank of India or National Housing Bank;

(v) the issuer has not defaulted in the repayment of deposits or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any public financial institution or banking company, in the last three financial years. Or

(e) Listed entities complying with the following criteria:

(i) whose public issued equity shares or debt securities are listed on recognized stock exchange for a period of at least three years immediately preceding the issue and have been complying with the listing agreement entered into between the issuer and the recognized stock exchanges where the said securities
of the issuer are listed;

(ii) having a net worth of at-least Rs.500 crore, as per the audited balance sheet of the preceding financial year;

(iii) having consistent track record of distributable profit for the last three years;

(iv) securities issued under the shelf prospectus have been assigned a rating of not less than “AA-” category or equivalent by a credit rating agency registered with SEBI;

(v) no regulatory action is pending against the company or its promoters or directors before the Board, Reserve Bank of India or National Housing Bank;

(vi) the issuer has not defaulted in the repayment of deposits or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any public financial institution or banking company, in the last three financial years.

(2) The issuer filing a shelf prospectus shall file a copy of an information mememorandum with the recognised stock exchanges and SEBI, immediately on filing the same with the Registrar.

(3) The information memorandum shall contain the disclosures specified in Companies Act, 1956 or Companies Act, 2013, whichever is applicable and rules made thereunder and shall include disclosures regarding summary term sheet, material updations including revision in ratings, if any along with the rating rationale and financialratios specified in Schedule I, indicating the pre and post issue change.

(4) Not more than four issuances shall be made through a single shelf prospectus.

Responsibilities of Merchant Banker

The lead merchant banker must ensure that –

• The draft offer document clearly specifies the names and contact particulars of the compliance officer of the lead merchant banker and the Company including the postal and email address, telephone and fax numbers.

• All comments received on the draft offer document are suitably addressed and shall also furnish to SEBI a due diligence certificate as per these regulations prior to the filing of the offer document with the Registrar of Companies.

• The lead merchant banker shall, prior to filing of the offer document with the Registrar of Companies, furnish to SEBI a due diligence certificate as per schedule II of these regulations.

Mode of Disclosure

– The draft offer document shall be made public by posting it on the website of the designated stock exchange for seeking public comments for a period of seven working days from the date of filing the draft offer document with such exchange.

– The draft offer document can also be displayed on the website of the issuer, merchant bankers and the stock exchanges where the debt securities are proposed to be listed.

– The draft and final offer document shall be displayed on the websites of stock exchanges and shall be available for download in PDF / HTML formats.

– Where any person makes a request for a physical copy of the offer document, the same shall be provided to him by the issuer or lead merchant banker.

Prohibition of Mis-statements in the Offer Document

– The offer document shall not omit disclosure of any material fact which may make the statements made therein, in light of the circumstances under which they are made, misleading.

– The offer document or abridged prospectus or any advertisement issued by an issuer in connection with a public issue of debt securities shall not contain any false or misleading statement.

Advertisements

• The issuer should make an advertisement in a national daily with wide circulation, on or before the issue opening date and such advertisement, amongst other things must contain the disclosures specified in these regulations.

• An issuer should not issue an advertisement–

– which is misleading in material particular or which contains any information in a distorted manner or which is manipulative or deceptive or extraneous matters.

– which contain a statement, promise or forecast which is untrue or misleading and the advertisement shall be truthful, fair and clear.

– during the subscription period any reference to the issue of debt securities or be used for solicitation.

Abridged Prospectus and Application Forms

The issuer and lead merchant banker shall ensure that :

– Every application form issued is accompanied by a copy of the abridged prospectus and it shall not contain any extraneous matters

– Adequate space has been provided in the application form to enable the investors to fill in various details like name, address, etc. The issuer may provide the facility for subscription of application in electronic mode.

On-line Issuances
An issuer proposing to issue debt securities to the public through the on-line system of the designated stock exchange shall comply with the relevant

Issue Price

A Company may determine the price of debt securities in consultation with the lead merchant banker and the issue may be at fixed price or the price may be determined through book building process in accordance with the procedure as may be specified by SEBI.

Minimum Subscription

The minimum subscription for public issue of debt securities shall be specified as 75% of the base issue sizefor both NBFCs and Non NBFC issuers. Further, if the issuer does not receive minimum subscription of its base issue size (75%), then the entire application monies shall be refunded within 12 days from the date of the closure of the issue. In the event, there is a delay, by the issuer in making the aforesaid refund, then the issuer shall refund the subscription amount along with interest at the rate of 15% per annum for the delayed period.

However, the issuers issuing tax-free bonds, as specified by CBDT, shall be exempted from the above proposed minimum subscription limit.

Explanation: In any public issue of debt securities, the base issue size shall be minimum Rs 100 crores.

Optional Underwriting

A public issue of debt securities may be underwritten by an underwriter registered with SEBI and in such a case adequate disclosures regarding underwriting arrangement shall be disclosed in the offer document.

Trust Deed
A trust deed shall–

(1) be executed by the issuer in favour of the debenture trustee within three months of the closure of the issue.

(2) contain such clauses as may be prescribed under section 71 of the Companies Act, 2013 and those mentioned in Schedule IV of SEBI (Debenture Trustees) Regulations, 1993.

(3) not contain a clause which has the effect of –

– limiting or extinguishing the obligations and liabilities of the debenture trustees or the issuer in relation to any rights or interests of the investors.

– limiting or restricting or waiving the provisions of the Act, these regulations and circulars or guidelines issued by SEBI.

– indemnifying the debenture trustees or the issuer for loss or damage caused by their act of negligence or commission or omission.
Debenture Redemption Reserve

(1) The issuer shall create a debenture redemption reserve in accordance with the provisions of the Companies Act, 2013 and circulars issued by Central Government in this regard.

(2) Where the Company has defaulted in payment of interest on debt securities or redemption thereof or in creation of security as per the terms of the issue of debt securities, any distribution of dividend shall require approval of the debenture trustees.

Creation of Charge

(1) The proposal to create a charge or security, if any, in respect of secured debt securities shall be disclosed in the offer document along with its implications.

(2) An undertaking from the Company is given in the offer document that the assets on which charge is created are free from any encumbrances and if the assets are already charged to secure a debt, the permissions or consent to create second or pari pasu charge on the assets of the issuer have been obtained from the earlier creditor.

(3) The issue proceeds shall be kept in an escrow account until the documents for creation of security asstated in the offer document, are executed.

Right to recall or redeem prior to maturity

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

(a) Such right to recall or redeem debt securities prior to maturity date is exercised in accordance with 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);

(b) The issuer or investor may exercise such right with respect to all the debt securities issued or held by them respectively or with respect to a part of the securities so issued or held ;

(c) In case of partial exercise of such right in accordance with the terms of the issue by the issuer , it shall be done on proportionate basis only;

(d) No such right shall be exercisable before expiry of twenty four months from the date of issue of such debt securities;

(e) 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;

(f) Issuer shall also provide a copy of such notice to the stock exchange where the such debt securities are listed for wider 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 ;

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

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

(i) After the completion of 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.

Redemption and Roll-over

(1) The issuer shall redeem the debt securities in terms of the offer document.

(2) An issuer desirous of rolling-over the debt securities issued by it, it shall do so only upon passing of a special resolution of holders of such securities and give twenty one days notice of the proposed roll over to them.

(3) The notice shall contain disclosures with regard to credit rating and rationale for roll-over.

(4) Prior to sending the notice to holders of debt securities, the issuer must file a copy of the notice and proposed resolution with the stock exchanges where such securities are listed, for dissemination of the same to public on its website.

(5) The debt securities issued can be rolled over subject to the following conditions –

– A special resolution has been passed by the holders of debt securities through postal ballot having the consent of not less than 75% of the holders by value of such debt securities.

– At least one rating is obtained from a credit rating agency within a period of six months prior to the due date of redemption and is disclosed in the notice.

– Fresh trust deed shall be executed at the time of such roll-over or the existing trust deed can be continued if the trust deed provides for such continuation.

– Adequate security shall be created or maintained in respect of such debt securities to be rolledover.

(6) The issuer shall redeem the debt securities of all the debt securities holders, who have not given their positive consent to the roll-over.
Mandatory Listing

(1) An issuer desirous of making an offer of debt securities to public shall make an application for listing to one or more recognized stock exchanges in terms of sub-section (1) of section 40 of the Companies Act, 2013.

(2) It must comply with conditions of listing of such debt securities as specified in the Listing Agreement with the stock exchange where such debt securities are sought to be listed.

(3) Where of the Company has disclosed the intention to seek listing of debt securities issued on private placement basis, it shall forward the listing application along with the disclosures specified in Schedule I to the recognized stock exchange within fifteen days from the date of allotment of such debt securities.

Leave a Reply