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Market regulator SEBI has raised the bar on disclosures and corporate governance standards for companies resorting to only listing of their larger debt issuances, virtually bringing them on par with the compliances already stipulated for equity listing by companies. However, many experts still feel that the latest measures although well intended may still pose higher compliance burden on the high value debt issuer entities.
The latest set of measures — introduced as amendments to Listing Obligations and Disclosure Requirements (LODR) Regulations — has now extended some provisions that were previously applicable only to equity listed entities to certain high value debt listed entities — those which have listed its non-convertible debt securities with an outstanding value of ₹500 crore and above — and making them ‘comply or explain’ till March 31, 2023, after which compliance will be mandatory.
Put simply, what SEBI has now done is introduce disclosure obligations and governance norms for large entities that have or want to list only their debt securities (non-convertible debentures) in the bourses and bring them on par with the disclosure norms applicable for entities that have listed their equities in the bourses.
LODR regulations
Aditya Bhargava, Partner, Phoenix Legal, a law firm, said the intention of the amendments to the LODR Regulations appears to be to reduce possible regulatory arbitrage and extend some provisions that were previously applicable only to equity listed entities to debt listed entities that meet a prescribed threshold.
“While laudable, this increases the compliance burden thus in turn increasing entry barriers to the debt capital markets, which appears somewhat contrary to the government’s and the regulators intent of deepening the debt capital markets.
“Also, an appropriate “heads up” in the form of a consultation paper for public comments and a prospective date for effectiveness - similar to the NCS Regulations of August 2021 - would have been appreciated by stakeholders”, Bhargava added.
Sahil Arora, Partner, Saraf & Partners, a law firm, said the amplified disclosure obligations coupled with certain other stipulations which are almost at par with the compliances for equity listing would certainly place a substantially higher compliance burden on issuer entities.
While an extended timeline towards compliance and a “comply or explain” standard for an initial period are certainly welcome, it remains to be seen if the proposed timelines would be sufficient for companies to transition to these heightened compliance obligations, he added.
SEBI had recently consolidated and liberalised the regulations on listing of non-convertible securities to allow for smaller and more frequent public issuances of NCDs such that issuer entities could tap into the bond market in a timely manner. However, the regulator appears to have taken an approach to balance the liberalisation and greater access to the listed debt segment, with heightened corporate governance standards for larger debt issuances, according to Arora.
SEBI regulations
Manshoor Nazki, Partner, IndusLaw, a law firm. said the latest amendments have been primarily undertaken to align the provisions relating to non-convertible securities with the recently-notified SEBI (Issue and Listing of Non- Convertible Securities) Regulations, 2021 which had repealed, and in a way merged, the SEBI (Issue and Listing of Debt Securities) and the SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) regulations, said.
Nazki also said that the latest LODR amendments also brings in certain substantial changes such as applicability of corporate governance norms to ‘high value debt listed entity’ (entities which have listed its non-convertible debt securities with an outstanding value of ₹500 crore and above).
There are also other amendments aimed at rationalisation of disclosures and other procedural aspects. Even though SEBI’s objective behind these amendments is to make the bond market more “robust”, it will remain to be seen whether these amendments are enough to achieve that, Nazki added.
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