SEBI softens contentious clause in bond issue norms as mkt voices concern
Informist, Friday, Oct. 11, 2024
By Sachi Pandey
MUMBAI – The Securities and Exchange Board of India has toned down a contentious clause in its latest amendments to regulations on corporate debt issuances after receiving feedback that the new norms had forced companies to put their fundraising plans on hold.
The new rules, announced on Sept. 18, were understood to mean that board approval was required for every issue--via private placement or public issue--of bonds that were proposed to be listed. This would have been a departure from earlier norms that allowed issuers to approve a cumulative amount for multiple tranches in one go. As such, it added new layers of complexity and procedural burden to the fundraising process for companies.
However, in a set of frequently asked questions issued on Thursday, the capital markets regulator clarified that the changes it made to regulations on Sept. 18 did not mean bond issuers had to seek board approval for the term-sheet for each new issuance.
"No, Clause 3.3.37(f) does not require prior approval of the contents of the document by the Board of Directors and only perusal of the content of the document is to be done," the clarification from SEBI said.
"The document has to be sent to the board of directors for information prior to opening of the issue in case of both public issue and private placement of non-convertible securities (that are proposed to be listed)," the SEBI clarification added.
Clause 3.3.37(f), added last month to Schedule I of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, says, "The persons authorised by the issuer shall attest that: the contents of the document have been perused by the board of directors, and the final and ultimate responsibility of the contents mentioned herein shall also lie with the board of directors."
While the amendment came into effect last month, issuers only understood its implications this week, after exchanges received verbal clarification from SEBI on Tuesday that the changes had to be followed. "There was no official notice, just verbal communication (from SEBI to exchanges)," an official at a large brokerage told Informist on the condition of anonymity, adding that the exchanges also communicated the regulator's instruction in a verbal manner.
Consequently, companies froze their fund-raising plans as they interpreted the revised norms to mean that each bond issuance would require prior board approval. At least one company in the middle of raising funds through bonds this week put its plans on hold. According to another official working at a large brokerage firm, SMFG India Credit Co.--a wholly-owned subsidiary of Japanese firm Sumitomo Mitsui Financial Group and previously known as Fullerton India Credit Co.--withdrew the reissue of its September 2026 bonds worth up to INR 2.5 billion, scheduled for Thursday, for this reason.
"For frequent issuers, it's not practical to hold a board meeting every time they need to raise funds," the first source said. Several public sector companies, including the likes of Indian Oil Corp., REC, and Power Finance Corp., which were looking to tap the market in the coming days, also postponed their plans as they understood the rule changes to mean that prior board approval was needed. Usually, companies get authorisation from their boards for a cumulative amount of funds that they can raise in one go or in multiple tranches.
The clarification from SEBI will bring much needed relief to bond issuers, with industry sources telling Informist that the revised regulations, as understood before the clarification, would have reduced the overall volume as well as money raised through corporate bonds.
"Getting board approval for each KID (key information document) is a time-consuming process," a senior official at a mid-sized non-banking financial company said on the condition of anonymity. Before the clarification was issued by SEBI, the official had told Informist that "hundreds" of non-banking financial companies were likely to raise the matter with the regulator and ask for relief. End
