By - King Stubb & Kasiva on June 29, 2023
The Securities Exchange Board of India (SEBI) has recently implemented amendments to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. These amendments, known as the SEBI (Issue and Listing of Non-Convertible Securities) (Amendment) Regulations, 2023, came into effect on February 2, 2023, with the aim of modifying the existing regulations that were originally introduced on August 9, 2021. The amendments primarily focus on the appointment of nominee directors, expansion of green debt securities, clarity in redemption notice circulation, and improving the framework for public issues of debentures. These changes enhance investor protection, corporate governance, transparency, and sustainability in the Indian debt securities market.
The recent amendments introduced by SEBI to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 have focused on the appointment of nominee directors in issuer companies. Under Regulation 24 of the NCS Regulations, the debenture trustee has the authority to appoint a nominee director on the board of directors of the issuer company in consultation with the debenture holders. The Amendment now mandates the inclusion of a provision in the debenture trust deed, requiring the issuer company to appoint a nominee director within one month of receiving the nomination from the debenture trustee. Issuer companies with listed debentures as of February 2, 2023, must amend their debenture trust deed by September 30, 2023, to adhere to this timeline.
SEBI's Amendment Regulations introduce sub-regulation (6) to Regulation 23 of the NCS Regulations, which imposes obligations on companies issuing debentures. This provision ensures that the issuer company's articles of association require the board of directors to appoint a nominee director from the debenture trustee in accordance with Regulation 15(1)(e) of the SEBI (Debenture Trustee Regulations), 1999. The DT Regulations mandate the appointment of a nominee director by the debenture trustee in cases of consecutive defaults in interest payment, failure to create security for the debentures or non-redemption of the debentures.
Issuer companies with listed debentures as of February 2, 2023, must amend their articles of association by September 30, 2023, to include this provision. Additionally, an issuer who has defaulted in interest payment or repayment of the principal amount for listed debentures must appoint the debenture trustee's nominated person as a director on the board within one month from the date of receiving the nomination or by February 2, 2023, whichever is later.
The recent amendments to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 have addressed two important aspects: redemption prior to maturity and the scope of green debt securities. Previously, the regulations lacked clarity on the process of notifying debenture holders about their right to recall or redeem debentures. The Amendment Regulations now specify that issuers must circulate a notice at least 21 days before exercising such rights. This notice should be sent electronically to debenture holders with registered email addresses and in hard copy to those without. The requirement to advertise in newspapers has been removed, but providing a copy of the notice to the relevant stock exchanges remains mandatory.
Furthermore, the scope of green debt securities has been expanded to align with the Green Bond Principles established by the International Capital Market Association. The amendments now include areas such as climate change adaptation, pollution prevention and control, sectors mentioned in the India Cooling Action Plan, blue bonds for sustainable water management and the maritime sector, yellow bonds for solar energy generation, and transition bonds for transitioning to more sustainable operations as per India's Intended Nationally Determined Contributions.
SEBI's Amendment Regulations have introduced Regulation 33A, which sets specific guidelines for public issues of debentures. According to this regulation, a public issue of debentures must remain open for a minimum of three working days and a maximum of ten working days. In case of a revision in the price band or yield, the bidding period must be extended by at least three days, not exceeding ten days.
These amendments address the need for clear timelines in the subscription process of debentures through public issues and the appointment of nominee directors. By establishing specific timeframes for the appointment of nominee directors, these changes enhance investor confidence, as delays have occurred in the past despite instructions from the debenture trustee. Moreover, the expansion of the definition of green debt securities aligns the regulations with internationally recognized principles and supports the objective of sustainable development.
In conclusion, the Amendment Regulations introduced by SEBI have significantly enhanced the regulatory framework governing non-convertible securities in India. These amendments encompass provisions related to the appointment of nominee directors, amendments to articles of association, circulation of redemption notices, and the expansion of the scope of green debt securities. The primary objectives of these changes are to bolster investor protection, foster transparency, and encourage sustainable investments.
Overall, the Amendment Regulations represent a positive stride toward strengthening the debt securities market in India. By promoting investor confidence, corporate governance, and sustainable investments, these regulations contribute to a more transparent, efficient, and responsible financial ecosystem.
The Amendment Regulations introduce a specific timeline for appointing nominee directors on the board of issuer companies. This addresses the issue of delays in appointments and reinforces confidence among debenture holders. It ensures a prompt and efficient process, enhancing investor protection and corporate governance.
The Amendment Regulations align the definition of green debt securities with international standards, specifically the Green Bond Principles published by the International Capital Market Association. The expanded scope now includes climate change adaptation, pollution prevention and control, blue bonds for sustainable water management and maritime sectors, yellow bonds for solar energy generation, and transition bonds for transitioning to more sustainable operations. This expansion promotes sustainable investments and supports India's goals for environmental conservation.
The Amendment Regulations provide specific guidelines for the circulation of redemption notices to debenture holders. It requires issuers to send a soft copy of the notice to holders who have registered their email addresses and a hard copy to those who haven't. The regulations remove the requirement of advertising in newspapers but retain the obligation to provide a copy of the notice to the stock exchanges where the debentures are listed. These changes streamline the process, ensuring timely and effective communication between issuers, debenture holders, and debenture trustees.