Regulator Sebi proposes to ease norms for borrowings by large corporates

The Securities and Exchange Board of India (Sebi) has proposed to remove penalty on large corporates for any shortfall in their incremental borrowings and introduce incentives on exceeding the threshold along with relaxation on several other norms.
 

The present norms require large corporates to raise 25 per cent of their incremental borrowings in a financial year by way of issuance of debt securities.

A penalty of 0.2 per cent of the shortfall is to be levied in case of not meeting the threshold. The norms were to be made effective with a block of two years ending March 2023 but were later extended by one more year.

 

Large corporates are defined as entities with an outstanding long-term borrowing of Rs 100 crore or above, have a credit rating of ‘AA’ and above, and have their debt securities or non-convertible redeemable    preference shares listed on a stock exchange.

The capital market regulator is planning to remove the penalty of 0.2 per cent in case of a shortfall, increase the minimum outstanding long-term borrowing to Rs 500 crore or above for eligibility as a large corporate, and remove the requirement of credit rating for the same.

Instead of levying a penalty, the large corporates will have to make additional contributions to the core Settlement Guarantee Fund of the Limited Purpose Clearing Corporation (LPCC) in case of a shortfall. In case of surplus of 25 per cent threshold, lower contribution will be prescribed.

Further, entities exceeding the threshold will be incentivised with lower listing fees payable to stock exchanges.

In a consultation paper floated on Thursday, the market regulator said that it had received representations by the large corporates on the challenges on compliance.

They have said that raising funds from banks and financial institutions is a cost effective option as compared to raising of funds from debt securities and subsidy benefits announced by the government for specific sectors are also not available in debt securities.

It noted that around one-third of the identified large corporates did not raise the minimum 25 per cent of their incremental borrowing through issuance of debt securities in the financial year 2021-22.

Sebi has also proposed to remove the block period of three years and make the norms applicable on an annual basis.

The markets regulator has sought comments on the proposal by August 31.