SEBI Board Meeting – Impact on NCD Transactions

The Securities and Exchange Board of India (SEBI) at its recent board meeting on June 29, 2021 approved several key proposals centred around the review of the primary regulations governing the issue and listing of non-convertible debentures [1] and redeemable preference shares [2] respectively including a proposal to merge these regulations into a consolidated regulation to be named the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

While we await the new regulations, set out below is a brief snapshot of the key proposals approved by SEBI and the potential impact on the NCD transactions once they are brought into force:

Sr. No. Existing Position Proposal Approved Impact
1. Any issuer seeking listing of debt securities, even on a private placement basis, was required to submit copies of audited annual reports for the previous 3 (Three) financial years. Subject to certain conditions stipulated (e.g. investors only being QIBs), issuers (other than unlisted REITs and InvITs) which are in existence for less than 3 years will be permitted to list their debt securities issued on private placement basis. This is a welcome move which will ease the existing teething issues being faced by SPVs (including acquisition vehicles) and newly formed listed REITs and InvITs in tapping the bond market.
2. After the slew of SEBI amendments in 2020 for secured debentures, only security over the assets of the issuer was contemplated under the SEBI framework. Further there exists a requirement to compulsorily create the security upfront. The proposal stipulates that an option to create charge over the properties or assets of the subsidiaries of the issuer, its holding companies or its associate companies is now sought to be specifically provided for under the new regulations to bring it in line with the Companies Act, 2013.

The recognition of third-party security creation will help issuers.

More importantly given the reference to aligning the position with the Companies Act, 2013, the hope is that the new regulations will also recognise (as is the case under the Companies Act, 2013) NCD structures which contemplate creation of security as a condition subsequent. This would be critical for and bring relief to issuers especially in the context of refinancing transactions.

3. Presently any issuer who has undertaken/ proposes to undertake an issuance(s) (in aggregate) in excess of Rs. 200 crore in a particular year is required to mandatorily utilise the electronic book mechanism. The threshold is proposed to be reduced from Rs. 200 crore to Rs. 100 crore. This will make more debt issuances subject to use of the EBP mechanism. The ongoing practical issues arising from its usage such as leakage/ usurping of a contracted trade and the additional turnaround time pre-issuance will accordingly have a wider negative impact.
4. For public issuance of debt securities put/ call options were permitted only after 24 months from the issuance date. For private placement of debt securities while put/ call options are recognised they are not presently subject of any prescriptive conditions on time periods or process. For public issuance of debt securities, the 24 months is proposed to be reduced to 12 months. There is also a proposal to introduce a similar requirement for private placement of debt securities.

For public issuance of debt securities this will bring greater structuring flexibility as compared to the earlier position.

However, in the context of private placement of debt securities introduction of the prescriptive conditions for put/ call options in line with those applicable to public issuances would be unduly restrictive and will impact several existing structures permitted under the existing regulations.

5. For public issuance of debt securities, an issuer was permitted to undertake a maximum of four issuances under a single shelf disclosure document during its one-year validity period. This restriction has been done away with which in effect permits issuers to undertake any number of issues during the validity period of the shelf disclosure document. This is positive for issuers of public debt securities as it will add to their ability to launch issues quickly and opportunistically.
6. NBFCs and listed companies were disqualified from filing a shelf disclosure document for public issuance of debt securities if, in the last 3 years, they had defaulted in the repayment of deposits or interest thereon, redemption of debentures or preference shares or payment of dividend or repayment of any term loan or interest payable thereon to any public financial institution or banking company. This disqualification is relaxed for issuers who have cured any such default provided that at the time of filing the draft shelf disclosure document at least 30 (Thirty) days have elapsed after such default being cured. This will enable issuers who have turned around to return to the public debt market at a quicker pace.
7. The minimum issue size required for a public issuance of debt securities is Rs. 100 crore. This requirement has been done away with. This change will encourage and enable smaller and more frequent public issuance of NCDs.

[1] SEBI (Issue and Listing of Debt Securities) Regulations, 2008
[2] SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013


Gautam Ganjawala, Partner
Karthik Mudaliar, Senior Associate
Kasab Vora, Associate



Date: August 5, 2021