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Sebi notifies rules for entities with listed debt securities

New Delhi: Capital markets regulator Sebi has come out with corporate governance rules for listed entities which have listed their debt securities. The development comes after Sebi merged rules pertaining to the issuance of debt securities into a single regulation last month.

The regulator had merged ILDS (Issue and Listing of Debt Securities) rules and NCRPS (Non-Convertible Redeemable Preference Shares) rules into a single regulation to be called Sebi (Issue and Listing of Non-Convertible Securities) Regulations.

In a notification on Tuesday, Sebi said provisions related to corporate governance, including composition of board of directors, related party transactions and audit committee, will apply to a listed entity which has listed its non-convertible debt securities and has an outstanding value of such debt securities of Rs 500 crore and above.

The other provisions that will apply to such listed entities are corporate governance requirements with respect to subsidiary of listed entities; obligations with respect to independent directors and employees including key managerial persons and promoters; and composition of nomination and remuneration committee, stakeholders relationship committee and risk management committee.

In case an entity that has listed its non-convertible debt securities triggers the specified threshold of Rs 500 crore during the course of the year, it will have ensure compliance with these provisions within six months from the date of such trigger, Sebi said.

It further said these provisions will be applicable to a ‘high value debt listed entity’ on a ‘comply or explain’ basis until March 31, 2023 and on a mandatory basis thereafter.

Explaining further, Sebi said in case the entity is not able to achieve full compliance with the provisions, till such time, it will explain the reasons for such non-compliance/ partial compliance and the steps initiated to achieve full compliance in the quarterly compliance report filed on corporate governance.

The high value debt listed entities would be determined on basis of value of principal outstanding of listed debt securities as on March 31, 2021.

In case of a ‘high value debt listed entity’ that is a Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvIT), the board of the manager of the respective trust will comply with the rules related to corporate governance.

In case of a high value debt listed entity which is a body corporate, Sebi said the non-executive directors on its board will be treated as independent directors.

In case of a high value debt listed entity which is a trust, the non-employee trustees on its board will be treated as independent directors.

The listed entity will have to inform the stock exchange at least two working days in advance about the board meeting in which proposals, including financial results and fund raising by way of issuance of non-convertible securities, are to be considered.

Other proposals include alteration in the form or nature of non-convertible securities that are listed on the exchange or in the rights or privileges of the holders thereof; an alteration in the date of the interest or dividend or redemption payment of such securities and any matter affecting the interests of holders of non-convertible securities.

The listed entity will have to intimate the stock exchange not later than the date of commencement of dispatch of notices, in case of any annual general meeting or extraordinary general meeting that is proposed to be held for obtaining shareholder approval for financial results and fund raising via non-convertible securities.

With regard to financial results, Sebi said the listed entity will prepare and submit unaudited or audited quarterly and year-to-date standalone financial results on a quarterly basis within 45 days from the end of the quarter to the stock exchange.

In case of entities which have listed their debt securities, a copy of the financial results submitted to stock exchanges will also be provided to debenture trustees on the same day.

Also, the regulator has put in various disclosure frameworks for such entities.

To give effect to these, the regulator has amended LODR (Listing Obligations and Disclosure Requirements) rules, which have become effective from September 7, according to the notification.

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