Sebi plans relaxed norms, sunset clause for high-value listed debt firms

Move to ease compliance burden for 166 pure-debt listed entities

The Securities and Exchange Board of India (Sebi) has proposed an overhaul to the framework governing high-value listed debt entities (HVLDE) in bid to reduce the compliance burden.

 

The regulator has proposed relaxation of threshold for identification of HVLDEs, introduction of Sunset Clause and exemption to entities not covered under the Companies Act.

 

At present, entities having an outstanding value of non-convertible listed debt (NCD) securities of more than Rs 500 crore are categorised as  HVLDEs.

 

Such entities have to adhere to stricter corporate governance codes. This is around board composition, having specified number of board meetings, submission of compliance certificate, implementing risk management plan and stricter rules around related-party transactions (RPTs).

 

 

Sebi has now proposed to increase the threshold to Rs 1,000 crore. The move could benefit over 166 entities, which are currently tagged as HVLDE but have outstanding listed NCDs of less than Rs 500 crore.

 

Furthermore, the regulator has proposed a special carve out in regulations to entities that have only listed debt but not equity. Of the 812 listed debt entities, only 264 have both equity and debt and 538 are pure debt entities. 

 

Sebi said the corporate governance norms have been approached from an equity perspective and may not be fully relevant for debt-listed entities. Hence, the special chapter in regulation is proposed for only-debt entities.

 

Another key change proposed by Sebi is the Sunset Clause for applicability of corporate governance norms.

 

At present, there is no period specified for HVLDE to comply with such provisions, once the outstanding amount falls below the specified threshold. As a result, entities have to comply even if they are no longer  HVLDE.

 

Sebi has proposed that the governance norms will continue to remain applicable till debt or net worth falls below the specified threshold for three consecutive financial years.

 

On the other hand, if the value of outstanding listed debt securities increases or hits the specified threshold, they will have to ensure compliance within two quarters.

 

The regulator has also proposed relaxation for HVLDEs which are not companies according to the Companies Act.

 

These would entail government bodies such as Nabard, Sidbi, NHB and Exim Bank — which are governed by specific Acts passed by Parliament and not by the Companies Act — don’t have to adhere to the stricter governance code.

 

Sebi has proposed tweaks to the disclosure requirements for RPTs, aiming to better protect the interest of debenture holders.

 

Currently, regulations mandate prior approval from shareholders for material RPTs.

 

However, in cases where debt-listed entities are wholly or substantially owned by one or a few related parties, obtaining approval from non-related party shareholders becomes impractical.

 

To address this issue, the regulator has suggested issuers declare upfront in offer documents the amount (percentage of issue size) of RPTs planned over the tenor of the non-convertible securities.

 

Further, it mandated that credit rating agencies monitor utilisation of proceeds.

 

Besides, Sebi has proposed relaxation to news governing constitution of various committees such as stakeholder relationship, risk management and nomination & remuneration.

 

It has also proposed introduction of the business responsibility and sustainability report for HVLDEs on a voluntary basis.