Obligations of Listed Entity which has
Listed its
Non-Convertible Debt
Securities & Non-Convertible Redeemable Preference Shares
Securities and Exchange Board of
India (‘SEBI’) in terms of power conferred under SEBI Act, 1992 notified
Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015 (‘Listing Regulations 2015’) on 2nd September,
2015, whereby it tries to align the present Listing Agreement with the
Companies Act, 2013 and they consolidate the scattered requirement under
listing agreement for different securities under single piece of regulation.
This regulation will be effective from the 90th day of this notification in the
Official Gazette i.e. 1st day of December, 2015. The Regulation 23(4) and 31A
will be effective with immediate effect.
Date
of Publication in Official Gazette: September
2, 2015
Date of Applicability: December
1, 2015
Applicability: The provisions of below given
regulations apply only to a listed entity which has listed its ‘Non-convertible Debt Securities’
and ‘[1]Non-Convertible
Redeemable Preference Shares’ on
a [2]recognized stock exchange.
This regulation also applicable on “Perpetual
Debt Instrument” and "Perpetual Non-Cumulative Preference Share” listed by banks.
‘NON – CONVERTIBLE DEBT SECURITIES’
which is ‘debt securities’ as defined under regulation 2(1)(e) of the
Securities and Exchange Board of India (Issue and Listing of Debt Securities)
Regulations, 2008. [Regulation 2(1)(t) of SEBI (LODR) Regulation 2015]
“NON – CONVERTIBLE REDEEMABLE
PREFERENCE SHARE” means a preference share which is redeemable in
accordance with the provisions of the Companies Act, 1956 (or the Companies
Act, 2013) and does not include a preference share which is convertible into or
exchangeable with equity shares of the issuer at a later date, with or without
the option of the holder. [Regulation 2(1)(k) of SEBI (Issue and Listing of
Non-Convertible Redeemable Preference Shares) Regulations 2013]
“DEBT SECURITIES” [Regulation
2(1) (e) of SEBI (ILDS) Regulations 2008]
means a non-convertible debt securities which create or acknowledge (include)
Debt Security does not include:
Bonds issued by
Government or such other bodies as may be specified by the Board, security
receipts and securitized debt instruments
All the terms “Indebtedness”, “Bond”,
“Debenture”, “Security”, “Perpetual Debt Instrument” and “BANK” defined at the end
of the article.
Lets Discuss the
Regulation
1. 50. INTIMATION TO STOCK EXCHANGE(S):
I.
INTEREST Due/ Redemption Due:
The
listed entity shall give prior intimation to the stock exchange(s)
Interest Due: At
least (11) eleven [3]working days before the date on and from
which the interest on debentures and bonds shall be payable.
Redemption Due: At
least (11) eleven working days before
the date on and from which the redemption amount of redeemable shares or of debentures
and bonds shall be payable.
II.
Intention to RAISE FUNDS:
The listed entity [4]may give intimation to raise
funds to the stock exchange(s) prior to the meeting of board of directors
wherein the proposal to raise funds through new non convertible debt securities
or non-convertible redeemable preference shares shall be considered.
The listed entity shall give intimation to raise funds to the stock
exchange(s) prior to issuance of such securities.
The aforesaid issue may be either
through a public issue or on private placement basis.
III.
Intention to Issue Non Convertible Debt Security:
The listed entity shall intimate to the
stock exchange(s), at least (2) two working days before the meeting of its
board of directors, at which the recommendation or declaration of below given
matter is proposed to be considered;
·
issue of non
convertible debt securities, or
·
any other matter
affecting the rights or
·
interests of holders
of non convertible debt securities or
·
non convertible
redeemable preference shares
Two Working Days:
excluding the date of the intimation and date of the meeting.
2. 51. DISCLOSURE OF INFORMATIONS:
The
listed entity shall promptly inform the stock exchange(s) of all information having:
·
Bearing on the
performance/Operation of the listed entity
·
Price Sensitive
Information OR
·
Any action that
shall affect payment of interest or dividend of Non-Convertible Preference
Shares OR
·
Redemption of Non
Convertible Debt Securities OR
·
Redeemable
Preference Shares
Prompt Inform:
·
The expression
‘promptly inform’, shall imply that the stock exchange must be informed as soon as practically possible
and without any delay AND
·
That the information
shall be given first to the stock
exchange(s) before providing the same to any third party.
The listed entity that has issued
or is issuing non convertible debt securities and/or non-convertible redeemable
preference shares shall make disclosures
as specified in [5]Part
B of Schedule III.
3. 52. FINANCIAL RESULT:
Provision relating to financial result:
The listed entity shall PREPARE and SUBMIT UN-AUDITED or AUDITED financial results on a half
yearly basis in the format as specified by the Board within forty five days
from the end of the half year to the recognized stock exchange.
Financial
Result on a HALF YEARLY basis, in the specified Format, WITHIN
45 days from the end of the half year to the recognized stock
exchanged.
Requirement with Respect to Financial Result:
The listed entity shall comply with following requirements
with respect to Preparation,
Approval, Authentication and Publication of annual and
half-yearly financial results:
Limited Review Report:
·
Un-audited
financial results shall be accompanied by limited review report prepared by the
STATUTORY AUDITORS of the Listed Entity or
·
In
case of Public Sector Undertakings,
Un-audited financial results shall be accompanied by limited review report
prepared by any PRACTICING CHARTERED
ACCOUNTANT, in the format as specified by the Board:
Note:
No
need to file un-audited financial results for the last half year accompanied by
limited review report by the auditors, IF
Company intimates in advance to the stock exchange(s) that it shall submit to
the stock exchange(s) its annual audited results within Sixty Days from
the end of the financial year.
lt
Signing of Financial Result:
i.
Half-yearly
results shall be taken on record by the board of directors AND
ii.
Signed
by the managing director / [6]executive
director.
Format of Financial Result:
The
audited results for the year shall be submitted to the recognized stock
exchange(s) in the same format as is applicable for half-yearly financial
results
Time period of filing of audited Financial Result:
If the listed entity
opts to submit un-audited financial results for the last half year accompanied
by limited review report by the auditors, it shall also submit audited financial results for the entire
financial year, as soon as they are
approved by the board of directors.
Disclosure of Modified Opinion:
Modified opinion(s) in audit
reports shall be appropriately and adequately addressed by the board of
directors while publishing the accounts for the said period. Modified opinion that
have a bearing on the
·
Interest Payment/ Dividend
Payment pertaining to non-convertible redeemable debentures/ redemption or
·
Principal repayment
capacity of the listed entity
Requirement with Respect to submission of Audited Financial
Results:
I.
The annual audited
financial results shall be submitted along with the following documents:
§ The annual audit report; and
§ Either Form A for audit report with unmodified opinion, or
Form B for audit report with modified opinion
II.
Duty of Board: The Form B and the accompanying annual audit report
submitted in terms of clause (a)
§ Shall be reviewed by the stock exchange(s) and
§ the Qualified Audit Report Review Committee in the manner
specified in Schedule VIII.
III.
Duty of Listed entity: The listed entity shall on the direction issued by the
Board,
§ Carry out the necessary steps, for rectification of modified
opinion and/or
§ submission of revised pro-forma financial results, in the
manner specified in Schedule VIII.
IV.
Format of application: The applicable formats of Form A and Form B shall be
specified by the Board from time to time.
[7]The
listed entity, while submitting half yearly / annual financial results, shall disclose
the following line items along with the financial results:
(a) credit rating and change in credit
rating (if any);
(b) asset cover available, in case of
non convertible debt securities;
(c) debt-equity ratio;
(d) previous due date for the payment
of interest/ dividend for non-convertible redeemable preference shares/
repayment of principal of non-convertible preference shares /non convertible
debt securities and whether the same has been paid or not; and,
(e) next due date for the payment of
interest/ dividend of non-convertible preference shares /principal along with
the amount of interest/ dividend of non-convertible preference shares payable
and the redemption amount;
(f) debt service coverage ratio;
(g) interest service coverage ratio;
(h) outstanding redeemable preference
shares (quantity and value);
(i) capital redemption
reserve/debenture redemption reserve;
(j) net worth;
(k) net profit after tax;
(l) earnings per share:
Certain
Non- Applicability’s:
§ The requirement of disclosures of debt service coverage
ratio, asset cover and interest service coverage ratio shall not be applicable for banks or non banking financial companies
registered with the Reserve Bank of India
§ The requirement of this sub- regulation shall not be applicable
in case of unsecured debt instruments issued by regulated financial sector
entities eligible for meeting capital requirements as specified by respective
regulators.
Certificate from Debenture Trustee:
While submitting the information
required under sub- regulation (4), the listed entity shall submit to stock
exchange(s), a certificate signed by
debenture trustee that it has taken note of the contents.
Disclosure of the Material deviation:
§ If there is any material deviation “in the use of proceeds
of issue of
-
Non convertible debt
securities and
-
non-convertible
redeemable preference shares from the objects stated in the offer document”.
§ Time
period of submission: This statement shall
be submitted on half yearly basis along with the half yearly financial results.
Publication in News Paper:
o
Time period of
publication: Within (2) two
calendar days of the conclusion of the meeting of the board of Directors.
o
Matter to be
published: the financial
results and statement referred to in sub-regulation (4).
o News Paper: Publish
in daily English news paper circulating in the whole or substantially the whole
of India.
Separate Disclosures
for entity which has listed its NON CONVERTIBLE REDEEMABLE PREFERENCE SHARES:
(a) Profit for the half year and
cumulative profit for the year;
(b) Free reserve as on the end of half
year;
(c) Securities Premium Account balances (if
redemption of redeemable preference share is to be done at a premium, such
premium may be appropriated from securities premium account):
Condition:
Disclosure on
securities premium account balance may be provided only in the year in which
non convertible redeemable preference shares are due for redemption;
(d) Track record of dividend payment on non
convertible redeemable preference shares:
Condition: In case the
dividend has been deferred at any time, then the actual date of payment shall
be disclosed.
(e) Breach of any covenants under the
terms of the non convertible redeemable preference shares:
Condition:
In case a listed entity
is planning a fresh issuance of shares whose end use is servicing of the non
convertible redeemable preference shares (whether dividend or principle
redemption), then the same shall be disclosed whenever the listed entity
decided on such issuances.
4. 53. ANNUAL REPORT:
Disclosure in Annual Report:
The annual report of the listed
entity shall contain disclosures as specified in Companies Act, 2013 along with
the following:
i.
Audited Financial Statements i.e. balance sheets, profit and
loss accounts etc;
ii.
Cash Flow Statement[8]
iii.
Auditors Report;
iv.
Directors Report;
v.
Name of the Debenture
Trustees with full contact details ;
vi.
Related Party
Disclosures as specified in Para A of Schedule V.
5.
54. ASSET COVER:
a) The listed entity shall maintain 100%
(Hundred Percent) asset cover, which is sufficient to discharge the principal
amount at all times for the non-convertible debt securities issued.
b) The listed entity shall disclose to the SE
(Stock Exchange) as applicable, the extent and nature of security created and
maintained with respect to its secured listed non-convertible debt securities.
The listed entity shall disclose half-yearly, year-to-date and
annual financial statements as applicable.
Not Applicability of this regulation:
In case of unsecured debt
securities issued by regulated financial sector entities eligible for meeting
capital requirements as specified by respective regulators
6.
55. REVIEW OF CERDIT RATING:
Each rating obtained by the listed
entity with respect to non-convertible debt securities shall be Reviewed At Least Once a Year by
a credit rating agency registered by the Board
INTIMATION TO DEBENTURE TRUSTEE/ STOCK EXCHANGE AND HOLDER OF
SECURITY
7.
56. DOCUMENTS AND INTIMATION TO DEBENTURE TRUSTEE:
A.
The listed entity shall
forward the following to the debenture trustee promptly:
ANNUAL REPORT:
i.
A copy of the annual
report
ii.
A copy of certificate
from the listed entity's auditors in respect of utilization of funds during the
implementation period of the project for which the funds have been raised
Time Period: Same shall forward at the same time as it is issued along with a
copy.
Condition: If issued for financial
working capital
In the case of debentures or
preference shares issued for financing working capital or general corporate
purposes or for capital raising purposes the copy of the auditor's certificate may be submitted at the end of each
financial year till the funds have been fully utilized or the purpose
for which these funds were intended has been achieved.
NOTICES, RESOLUTIONS AND CIRCULARS:
A copy of all notices, resolutions
and circulars relating to-
iii.
A Copy of Resolution and Circular of New Issue
of non convertible debt securities;
iv.
A copy of Notice of the meetings of holders of
non-convertible debt securities;
Time
Period: At
the same time as they are sent to shareholders/ holders of non convertible debt
securities OR advertised in the media including those relating to proceedings
of the meetings;
INTIMATIONS
REGARDING:
v.
Any revision in the
rating;
vi.
Any default in timely
payment of interest or redemption or both in respect of the non convertible
debt securities
vii.
Failure to create
charge on the assets
viii. CERTIFICATE
REGARDING ASSET COVER:
§ A Certificate regarding maintenance of 100% (hundred percent)
asset cover in respect of listed non convertible debt securities.
§ Certificate along with half yearly Financial Result.
§ This is half yearly Certificate
§ Certificate by a Practicing Company Secretary of a Practicing
Chartered Accountant
Non Applicability of this half yearly
certificate:
The submission of such half yearly certificates is not
applicable in cases where a listed
entity is a bank or non banking financial companies registered with
Reserve Bank of India or where bonds are secured by a Government guarantee.
B. Information required by
Debenture Trustee:
The listed entity shall forward to
the debenture trustee any such information sought
and provide access to relevant books of accounts as required by the debenture trustee.
Form of Submission
(Physically/ Electronically):
The listed entity may, subject to the consent of the debenture
trustee, send the information stipulated in sub-regulation (1), in electronic
form/fax.
8.
57. SUBMISSIONS WITH STOCK EXCHANGE:
i.
Certificate Regarding Payment Of
Interest And Principal:
§ Submission within 2 days of the interest or principal or both
becoming due.
§ Certificate regarding that entity has made timely payment of
interests or principal obligations or both in respect of the non convertible
debt securities
ii. Undertaking
on Annual Basis:
§ The listed entity shall provide an undertaking to the stock
exchange(s) on annual basis.
§ Undertaking regarding all documents and intimations required to
be submitted to Debenture Trustees in terms of Trust Deed and Securities and
Exchange Board of India (Issue and Listing of Debt Securities) Regulations,
2008 have been complied with.
iii.
Information required by SEBI:
The listed entity shall forward to the stock exchange any other
information in the
manner and format as specified by the Board from time to time
9.
58. SUBMISSIONS WITH HOLDER OF SECURITY:
i.
The listed entity shall
send following documents to holder of non convertible preference share:
§ Soft copies of full annual reports with holder of non
convertible preference share, have registered their email address(es) for the
purpose;
§ Hard copy of statement containing the salient features of all
the documents, as specified to holders, who have not so registered
-
Financial Statement,
(if applicable, consolidated financial statement)
-
Auditor Report
-
Directors’ Report
ii.
The listed entity shall
send following documents to both non
convertible debt securities holder of non
convertible preference share:
§ Hard copy of full annual report to those
holders, who request for the same.
§ Half yearly communication as specified in sub-regulation (4)
and (5) of regulation 52, to holders of non convertible debt securities and non
convertible preference shares.
iii.
The listed entity shall
send the notice of all the meetings of holders of non convertible
debt securities and holders of non-convertible redeemable preference shares
respectively.
The notice must mentioned the
provision or appointment of proxy as mentioned (as per Section 105 of the
Companies Act, 2013) shall be applicable for such meeting
iv.
Proxy form. which shall be worded in such a manner that holders of these
securities may vote either for or against each resolution
v.
60. RECORD DATE:
Purposes for Record Date:
The listed entity shall fix a
record date for purposes of payment of interest, dividend and payment of
redemption or repayment amount or for such other purposes as specified by the
stock exchange.
Time period of Intimation to Stock
Exchange:
At least 7 (seven) [9]working days in advance to the recognised stock exchange(s) of
the record date or of as many days as the stock exchange(s) may agree to or
require specifying the purpose of the record date
vi. 61. TERMS OF NON CONVERTIBLE DEBT SECURITIES AND NON CONVERTIBLE
REDEEMABLE PREFERENCE SHARES:
a) The listed entity shall ensure timely payment of interest or
dividend of non-convertible redeemable preference shares or redemption payment.
Situation of non declaration of
Dividend:
If listed entity has defaulted in
payment of interest on debt securities or redemption thereof or in creation of
security as per the terms of the issue of debt securities. Then listed entity shall
not declare or distribute any dividend.
Non Applicability of this clause:
This requirement shall not be
applicable in case of unsecured debt securities issued by regulated financial
sector entities eligible for meeting capital requirements as specified by
respective regulators.
b)
Unclaimed Interest/ Dividend:
The listed entity shall not forfeit unclaimed
interest/dividend and such unclaimed interest/dividend shall be transferred to
the ‘Investor Education and Protection Fund’ set up as per Section [10]125
of the Companies Act, 2013.
c)
Redemption of Listed Securities:
The listed entity shall not select
any of its listed securities for redemption otherwise
than pro rata basis or by lot, unless the terms of issue provide otherwise.
d)
Transfer of Securities:
For Transfer of shares the
listed entity shall comply with following requirements:
§
Regulation [11]40
; and
§
Schedule VII -w
transfer of securities
vii. 62. WEBSITE.
(1) The listed entity shall
maintain a functional website containing the following information about the
listed entity:-
(a) details of its business;
(b) financial information including
complete copy of the annual report including balance sheet, profit and loss
account, directors report etc;
(c) contact information of the designated
officials of the listed entity who are responsible for assisting and handling
investor grievances;
(d) email address for grievance redressal
and other relevant details;
(e) name of the debenture trustees with
full contact details;
(f) the information, report, notices, call
letters, circulars, proceedings, etc concerning non-convertible redeemable
preference shares or non convertible debt securities;
(g) all information and reports including
compliance reports filed by the listed entity;
(h) information with respect to the
following events:
(i) default by issuer to pay interest on or redemption amount;
(ii) failure to create a charge on the assets;
(iii) revision of rating assigned to the non convertible debt
securities:
(2) The listed entity may also issue a press release with
respect to the events specified in sub-regulation (1).
(3) The listed entity shall ensure that the contents of the
website are correct and updated at any given point of time.
Other Obligations
As above we
have discussed the regulations specifically applicable to listed entity which
has listed its non-convertible debt securities or non-convertible redeemable
preference shares or both.
But there are certain other regulations
which are also applicable on listed entity, which have its non-convertible debt
securities or non-convertible redeemable preference shares or both listed on
recognized stock exchange as given below:
Regulation
No. 5-14
|
Common
obligations of listed entities
|
I have discussed regulation No. 5-14 in
Article “Series- LODR- 1”.
As discussed above lets discuss the terms use in the definition of Debt Security
Debt securities include debentures and bonds. Bond issued by government companies and statutory bodies also included in the definition but sovereign bonds issued by government are not included.
Indebtedness:
The word indebtedness made form word
in·debt·ed·ness. An obligation to pay money to another party.
Bond:
A bond is a debt security. When you
purchase a bond, you are lending money to a government, municipality,
corporation or other entity known as an issuer.* In return for that money,
the issuer provides you with a bond in which it promises to pay a specified rate of interest during the life of the
bond and to repay the face value of the bond (the principal) when it matures,
or comes due.
Bonds are used by companies,
municipalities and states to raise money and finance a variety of projects and
activities. Owners of bonds are debt holders, or creditors, of the issuer. All documented contracts and loan agreements are bonds.
Debenture:
A debenture is an instrument of debt
executed by the company acknowledging its obligation to repay the sum at a specified
rate and also carrying an interest. It is only one of the methods of raising
the loan capital of the company. A debenture is thus like a certificate of loan
or a loan bond evidencing the fact that the company is liable to pay a
specified amount with interest and although the money raised by the debentures
becomes a part of the company's capital structure, it does not become share
capital.
The debentures issued under the Act
shall not carry any voting rights. In the case of public issue of debentures,
there would be a large number of debenture holders on the register of the
company. As such it shall not be feasible to create charge in favour of each of
the debenture holder. A common methodology generally adopted is to create Trust
Deed conveying the property of the company. A Trust deed is an arrangement
enabling the property to be held by a person or persons for the benefit of some
other person known as beneficiary. The Trustees declare the Trust in favour of
the debenture holders. The Trust Deed may grant the Trustees fixed charge over
the freehold and leasehold property while a floating charge may be created over
other assets. The Company shall allow inspection of the Trust Deed and also
provide copy of the same to any member or debenture holder of the company on
payment of such sum as may be prescribed.
Security:
A security is a financial instrument that represents an ownership
position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a
corporation (bond), or rights to ownership as
represented by an option. A security is a fungible, negotiable financial instrument that
represents some type of financial value. The company or entity that issues the
security is known as the issuer.
Security Include:
·
Share,
scripts, stock, bond, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or body
corporate;
·
Derivative;
·
Unit
or any instrument issued by any collective investment scheme to investors in
such scheme;
·
Security
receipt as defined in clause (zg) of section 2 of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 {SARFAESI 2002};
·
Units
or any other such instrument issued to the investor under any mutual fund
scheme; {certain exception there};
·
Any
certificate or instrument (by whatever name called), issued to an investor by
any issuer being a special purpose distinct entity which possess any debt or
receivable, including mortgage debt, assigned to such entity, and acknowledging
beneficial interest of such investor in such debt or receivable, including
mortgage debt, as the case may be;
·
Government
securities;
·
Such
other instrument as may be declared by the Central Government to be securities
{onshore rupee bond issued by multilateral institutions};
·
Rights
or interest in securities. [Section 2(h) of Securities Contract (Regulation)
Act, 1956]
Perpetual Debt Instrument:
Financial institutions in India use perpetual
debt instruments to raise capital. Banks issue these unsecured debt instruments
as bonds or debentures subordinate to the depository claims. For PDIs to
qualify for "Tier I" capital inclusion, it must meet capital adequacy
purposes as stated by the Reserve Bank of India.
BANK:
For the purpose of this chapter,
“Bank" means any bank included in the Second Schedule to the Reserve Bank
of India Act, 1934. This schedule include list of banks on which these listing
regulations applicable.
[1] DISCLAIMER: For the purpose of this chapter, if the
listed entity has listed its non-convertible redeemable preference shares:
(i)The
reference to “interest” may also read as dividend;
(ii)
The provisions concerning debenture trustees and security creation (or asset
cover or charge on assets) shall not be applicable for “non-convertible
redeemable preference shares”
[2] As
per “The Securities Contracts (Regulation) Act, 1956, “Recognized Stock
Exchange [Section 2(f)] means a stock exchange which is for the time being
recognized by the Central Government under Section 4 of the Act.
[4] It is on discretion of Listed entity to inform stock either before
Board Meeting or after Board meeting in which proposal to raise funds is
discussed.
[5] Detailed discussion on Schedule III Part B we will do in separate
article. { The listed entity shall promptly inform to the stock exchange(s)
expected default in timely payment of interests/preference dividend or
redemption or repayment amount, any events such as strikes and lock outs,
delay/ default in payment of interest or dividend / principal amount /redemption
for a period of more than three months from the due date}.
[6] Definition of Executive Director given in Rule 1(K) of Companies
(Specification of definition details) Rules, 2014- Executive Director means a
whole-time Director as defined in clause (94) of Section 2 of the Act.
Clause (94) section 2 of Companies Act, 2013 Whole time director
includes a director in the whole-time employment of the Company.
[7] All the term used below will be defined in a separate article.
[8] cash flow statement presented only
under the indirect method as prescribed in Accounting Standard-3/ Indian
Accounting Standard 7, mandated under Section 133 of the Companies Act, 2013
read with relevant rules framed there under or by the Institute of Chartered
Accountants of India, whichever is applicable
[9] Seven days excluding the date of
intimation and the record date
[10] Investor Education and Protection Fund.
[11] Transfer or transmission or transposition
of securities.
(Author – CS Divesh Goyal, GOYAL DIVESH &
ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at
csdiveshgoyal@gmail.com)
Disclaimer: The entire contents of this document
have been prepared on the basis of relevant provisions and as per the
information existing at the time of the preparation. The observations of the
author are personal view
and the authors do not take responsibility of the same and this cannot be
quoted before any authority without the written
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