SEBI Proposes Changes to Improve Ease of Doing Business In Debt Market; Considers Fast Track Public Issuance

To enhance ease of business for listed debt issuers, Securities and Exchanges Board of India on December 9, 2023, floated proposals to streamline regulations governing debt issuances. SEBI suggested lowering the denomination to Rs. 10,000 for issuers of Non-convertible debt securities (NCDs) or Non-Convertible Redeemable Preference Shares (NCRPS) so that more non-institutional investors can enter the market. It also came up with the idea of fast fast-track public issue process. SEBI has invited public comments on these proposed changes until December 30, 2023.

SEBI's Rationale & Proposed Changes

The proposals stem from public comments received by SEBI on Listing Obligations and Disclosure Requirements (LODR) and Issue and Listing of Non-Convertible Securities (NCS) Regulations. Currently, SEBI mandates a face value of rupees one lakh for each privately placed debt security or NCRPS, posing barriers for non-institutional investors. SEBI, on September 30, 2023, reduced the face value from Rs. 10 lakh to Rs. 1 lakh. Possibly due to this, non-institutional investors subscribed to 4 per cent of the total amount raised as compared with the general average of less than 1 per cent. So, to further increase penetration of the debt market Sebi proposed the following changes.

Denomination Reduction: 

SEBI proposed to reduce the face value of privately placed NCDs and NCRPS from Rs. 1 lakh to Rs. 10,000. However, in such cases, the issuer shall appoint a merchant banker who shall carry out due diligence for issuance of such privately placed NCDs or NCRPS and disclosures in the private placement memorandum, the release said.

It is pertinent to note that irrespective of whether the NCDs are issued by way of public issuance or private placement, once they are listed, they are freely transferable in the secondary market.

Standardized Record Date: 

Inconsistency of shut periods or record dates was noted and SEBI proposed to standardize record dates 15 days before payment due dates, ensuring uniformity.

The record date is the date on which the investor must be the owner of the debt securities for corporate actions. In market parlance, the shut period refers to the number of days between the Record Date and the interest payment date/ redemption date.

Fast Track Public Issue Process: 

The market regulator proposed to introduce a fast-track public issuance mechanism, to help frequent issuers with a consistent track record to make public issues of debt securities with reduced time, cost and effort. Proposals include reducing the time for public comments on draft offer documents to two days. The GID and KID filed for fast-track public issuance of debt securities should have all the necessary information which was listed in the release.

The fast-track public issue of debt securities may be kept open for a minimum of one working day and a maximum of 10 working days, SEBI said.

It is proposed that the timeline for listing fast-track public issue of debt securities may be specified at ‘T+3’, as opposed to ‘T+6’ for a regular public issue.