SEBI specifies norms for Large Entities to follow while raising fund/s by issuing debt securities
Pursuant to the Union Budget announcement 2018 requiring the Securities and Exchange Board of India (“SEBI”) “to consider mandating, beginning with large entities, to meet about one-fourth of their financing needs from the debt market”, SEBI has rolled out a Circular dated November 26, 2018 providing for fund raising by issuance of debt securities by Large Entities.
A. Applicability of Framework
- The framework will become applicable from –
- April 01, 2019 – For the entities following April-March as their Financial Year (FY)
- January 01, 2020 – for the entities which follow calendar year as their FY
2. Barring Scheduled Commercial Banks, this framework will be applicable for all listed entities who, as on last day of their FY:
- have their specified securities or debt securities or non-convertible redeemable preference share, listed on a recognised stock exchange(s) in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015; and
- have an outstanding long term borrowing of Rs 100 crores or above,
- have a credit rating of “AA and above”.
A listed entity, fulfilling the criteria specified above will be considered as a Large Corporate (‘LC’). During the FY subsequent to the FY in which it is identified as a LC, an LC must raise not less than 25% of its incremental borrowings, by way of issuance of debt securities, as defined under SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
For an entity identified as an LC, the requirement of meeting the incremental borrowing norms will be as follows:
- For FY 2020 and 2021- on an annual basis.
In case an LC is unable to comply with the above requirement, it shall provide an explanation for such shortfall to the Stock Exchanges as per point C.
2. From FY 2022 – over a block of two years.
If at the end of two years, there is a shortfall in the requisite borrowing (i.e. the actual borrowing through debt securities is less than 25% of the incremental borrowings), a monetary penalty/fine of 0.2% of the shortfall in the borrowed amount will be levied.
C. Disclosure requirements for Large Entities
A listed entity, identified as a LC under this framework, must make the following disclosures to the stock exchanges, where its security(ies) are listed:
- Within 30 days from the beginning of the FY, disclose the fact that they are identified as a LC, in the format as provided at Annexure A.
- Within 45 days of the end of the FY, the details of the incremental borrowings done during the FY, in the formats as provided at Annexure B1 and B2.
The disclosures must be certified both by the Company Secretary and the Chief Financial Officer, of the LC must also form part of audited annual financial results of the entity.
For a detailed read of the Circular with Annexure A, B1 and B2 and the definitions of Financial Year, credit rating and incremental borrowings, please click on the hyperlink below.