1. INTRODUCTION
The Securities and Exchange Board of India ("SEBI") in its meeting of the board members held on June 28, 2023 ("Board Meeting")1 has approved a slew of significant proposals in relation to equity as well as debt securities markets. These proposals are likely to result in an overhaul of the regulatory regime governing domestic equity and debt capital markets.
2. KEY PROPOSALS APPROVED IN SEBI'S BOARD MEETING
Some of the key proposals approved by the SEBI in the Board Meeting are set out below:
2.1. Introduction of provisions regarding listing and voluntary delisting of non-convertible debt securities ("NCDs")
SEBI has prescribed that with effect from January 1, 2024, all 'listed entities' (as defined under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015)2 having outstanding listed NCDs as on December 31, 2023, would be required to issue listed NCDs. However, entities which have listed as well as unlisted NCDs as on December 31, 2023, would have the option to list the outstanding unlisted NCDs, however the same would not be mandatory.
While SEBI has introduced the concept of mandatory listing of NCDs for such listed entities (i.e. entities having listed NCDs as on December 31, 2023), it has also permitted listed entities to delist their existing listed NCDs (issued on a private placement basis and having less than 200 NCD holders), if such issuers intend to issue only unlisted NCDs from January 1, 2024 onwards. Such delisting of NCDs shall be subject to unanimous consent from the holders of the NCDs.
SEBI has exempted the following types of issuances from the abovementioned requirement on listed entities to mandatorily issue listed NCDs:
- Capital gains tax debt securities issued under Section 54EC of the Income Tax Act, 1961;
- NCDs issued in pursuance of an agreement between the issuer of listed NCDs and multilateral institutions, subject to a lock-in period and where NCDs are to be held till maturity; and
- NCDs issued pursuant to any order of the court or regulatory requirement as stipulated by a financial sector regulator (including SEBI, Reserve Bank of India, Insurance Regulatory and Development Authority of India, etc.)
2.2. Reduction of timeline for listing of shares in a public issuance to T+3 days
With the aim to further streamline the process of listing of public issuance of shares of companies, SEBI has revised the existing timeline of 'T'+6 days (where T is the date of issue closure) by half, and now prescribes that the listing process of public issuance of shares must be completed in T+3 days.
To assist all stakeholders in reducing the timeline for listing of shares upon closure of the issue gradually, SEBI has permitted companies to adhere to the reduced timelines on a voluntary basis after September 1, 2023, and mandatorily from December 1, 2023.
2.3. Revision of minimum unitholding requirements for sponsor(s) and introduction of concept of SelfSponsored Investment Manager of Infrastructure Investment Trusts ("InvITs") and Real Estate Investment Trusts ("REITs")
At present, sponsors of InvITs and REITs are required to hold at least 15% of the units of the InvIT/REIT for at least 3 years from the date of listing of units. Considering investments by sponsors in InvITs/REITs are monetized over a long period of time due to nature of the trust and to align the interest of the sponsors with that of the investors (of InvITs/REITs), SEBI has introduced the concept of minimum unitholding requirements for sponsors, whereby the sponsors will have to retain a minimum unitholding during the life of the InvIT/REIT, which will be locked-in and unencumbered.
To promote a more professional management of the InvITs/REITs as well as providing an additional exit opportunity to sponsors (of InvITs/REITs), the SEBI has now permitted investment managers to also act as sponsors of InvITs/REITs, subject to compliance of the following requirements, amongst others:
- The InvIT/REIT has to be listed for at least 5 years;
- At least one of the existing sponsors intending to withdraw from being a sponsor of the InvIT/REIT should have been a sponsor for at least 5 years;
- The investment manager intending to be a sponsor meets the net worth criteria specified for the sponsors under SEBI regulations on InvITs and REITs; and
- Existing sponsors to not have control over investment manager upon the InvIT/REIT becoming a selfsponsored InvIT/REIT.
2.4. Introduction of board nomination rights to unitholders of InvITs and REITs
Keeping in mind the growing number of retail investors in InvITs and REITs, and to further recognise the role of all unitholders of InvIT/REIT, SEBI has permitted board nomination rights to unit holders holding
10% or more of the outstanding units of InvIT/REIT individually or collectively. The SEBI has also prescribed that the principles of Stewardship Code3 would be applicable to all unitholders holding 10% or more outstanding units of InvIT/REIT.
2.5. Introduction of provisions for additional disclosures for Foreign Portfolio Investors ("FPIs")
To ensure stricter compliance with SEBI regulations, FPIs which fulfil the objective criteria set out below, are required to provide granular level disclosures, including ownership, economic interest and control, on a full look-through basis. The objective criteria for a qualifying FPI are:
- FPIs holding more than 50% of their Indian assets under management ("AUM") in a single corporate group; or
- FPIs that individually or along with the investor group hold more than INR 25,000 crore of equity AUM in the Indian markets.
However, government and government-related investors, pension funds and public retail funds amongst others, are exempted from providing additional disclosures even in case they qualify in any of the aforementioned criteria.
2.6. Enablement of direct participation by participants (clients) in the Limited Purpose Clearing Corporation ("LPCC")
With an aim to promote timely availability of funds in the market, the SEBI has now permitted direct participation of borrowers as well as lenders in repo transactions in corporate bonds through LPCCs, which presently could only be undertaken through a clearing member.
3. QUICK VIEW
To promote ease of access to all stakeholders, the proposals approved by SEBI are a welcome step in the debt capital markets, with respect to providing uniformity in issuance of listed or unlisted NCDs by corporate entities as well as permitting direct participants to transact in repo deals in corporate bonds in the LPCC. Whilst the detailed guidelines from SEBI are awaited in this regard, it will be imperative to evaluate the scope of exemptions on the applicability of the mandatory listing regime. Also, permitting investment managers to become sponsors of the InvIT/REIT managed by them and providing an exit opportunity to existing sponsors is likely to herald a more developed and mature ecosystem for management of InvITs/REITs generally. Last but not the least, the much-awaited guidelines on additional disclosures on a full look-through basis by qualifying FPIs, which aims to prevent circumvention of SEBI regulations, are definitely likely to result in enhanced transparency. Having said that, the devil truly lies in the details, and therefore, the fine print on the implications of the aforesaid developments can only be gauged when SEBI issues the relevant amendments in this regard.
Footnotes
1. Available at: https://www.sebi.gov.in/media/press-releases/jun-2023/sebi-board-meeting_73278.html
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