Informist, Thursday, Oct. 31, 2024

--SEBI proposes easier governance norms for High Value Debt Listed Entity

--CONTEXT: Cos with outstanding NCD over INR 5 bln are high-value entities

--SEBI: Propose hiking floor for High Value Debt Listed Entity to INR 10 bln

--SEBI seeks comments on circular on High Value Debt Listed Entity by Nov 15

MUMBAI – To identify high value debt listed entities for applicability of corporate governance norms, the Securities and Exchange Board of India has proposed increasing the threshold to INR 10 billion from INR 5 billion earlier.

The proposal to increase the threshold has been taken as it was found that 812 entities that have listed debt instruments have an outstanding amount of INR 37.25 trillion as per data received from National Securities Depository Ltd. Around 112 pure debt listed entities have an outstanding of more than INR 10 billion and 75 entities have an outstanding more than INR 20 billion.

"It is proposed that the threshold of listed outstanding non-convertible securities for identification of a debt listed entity as HVDLE (high value debt listed entities) may be increased from Rs.500 crore to Rs.1000 crore," the draft circular said.

The regulator has also proposed introducing a separate chapter for high value debt listed entities comprising of all the provisions pertaining to corporate governance norms. Currently, the corporate governance norms continue to apply to a high value debt listed entity even when the outstanding value falls below the threshold. But, there is no specific period for which the debt instrument has to comply with the specified provisions.

Therefore, SEBI has proposed that once the corporate governance norms become applicable to a high value debt listed entity, then they will remain applicable even if the outstanding value of the instrument falls below the threshold for three consecutive financial years.

"Further, if the value of outstanding listed debt securities of the entity increases in the subsequent years and the listed entity hits the specified threshold, then it has to ensure compliance with the provisions within two quarters, that is, six months and disclosures of such compliance may be made in the Corporate Governance compliance report on and from third quarter following the trigger," the draft said.

SEBI has also proposed the introduction of 'Business Responsibility and Sustainability Report' for high value debt listed entities on a voluntary basis. "To inculcate practice of good governance at par with equity listed, HVDLEs may comply with the requirements of publishing BRSR on a voluntary basis," the draft said.

The regulator has also proposed changes in the requirements pertaining to related party transactions. Currently, debt listed entities need to get approval from the audit committee and shareholders through resolutions. "...in which case, the entity will not be able to transact such RPTs (related party transactions) because of 'impossibility of compliance' with the provisions of LODR Regulations," the draft said.

SEBI said that just as banks include covenants in their lending agreements, debenture holders should also have a similar approach as it would provide a layer of protection to those who might be at risk of unfair treatment in related-party transactions. "Accordingly, it is proposed that issuer at the time of issuance of non-convertible securities (proposed to be listed) may provide a declaration upfront in the offer document regarding the amount (percentage of issue size) of RPT (related party transaction), issuer proposes to undertake over the tenor of the proposed non-convertible securities." The utilisation of the proceeds of the issue would be monitored by the credit rating agency.

The regulator has sought comments on the consultation paper by Nov. 15. End

Reported by Kshipra Petkar

Edited by Ashish Shirke

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