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By Author: Rutuja Shemwal
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The Indian Debt Capital Markets in May 2021 saw the Securities & Exchange Board of India (SEBI) proposing a very significant & much awaited regulatory update in the landscape of corporate bonds & non-convertible redeemable preference shares (NCRPS) issued & listed on recognized stock exchanges of our nation. The proposal put forth a consultation paper inviting comments / views of public at large on the merger of existing SEBI (Issue & Listing of Debt Securities) Regulations, 2008 (ILDS Regulations) and SEBI (Issue & Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 (NCRPS Regulations) into SEBI (Issue & Listing of Non-Convertible Securities) Regulations, 2021.

The proposed NCS Regulations are aimed at achieving broader objectives like:

Easing significant compliance burden on listed companies.
Striking harmony with the Companies Act, 2013.
Maintaining consistency with the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (LODR Regulations), SEBI (Debenture Trustees) Regulations, 1993 (DT Regulations) & various circulars ...
... issued thereunder.
To consolidate certain provisions of circulars issued under the ILDS Regulations & NCRPS Regulations.
To get an understanding of the impact ushered in by the proposed NCS Regulations, one shall have to understand the background of the extant ILDS Regulations & NCRPS Regulations, subsequent changes in the regulatory vista encompassing the subject securities & their issuers followed by the amendments to be brought in by the proposed regulations.

ILDS Regulations & NCRPS Regulations

The ILDS Regulations, notified on June 6, 2008, deal with the issuance & listing of debt securities with Stock Exchanges in India. Such debt securities largely include Corporate Bonds & Government Bonds followed by the now trending Municipal Bonds. The NCRPS regulations, notified on June 12, 2013, were enacted for the issuance and listing of NCRPS covering also the likes of Perpetual Debt Instruments (PDIs) & Perpetual Non-Convertible Preference Shares (PCNPS). Unlike the ‘pure play’ debt instruments under the ILDS Regulations, NCRPS are hybrid equity & debt instruments carrying a fixed dividend rate, compulsion to redeem & entitlement of voting rights to the holder in the event of Issuer Company failing to pay dividend for two years. Considering this, NCRPS are also termed as ‘quasi debt instruments’. Keeping in mind the similarities between debt securities & NCRPS, the NCRPS Regulations have been modelled on the ILDS Regulations.

The Time Passage

As noticeable, a considerable amount of time has passed since the ILDS Regulations & NCRPS Regulations were implemented. The almost two decade long run saw various changes being brought into the regulatory vista like:

Introduction of & amendments to the Companies Act, 2013.
Repeal of the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 & notification of SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 (ICDR Regulations).
Significant enhancements in various requirements for Debenture Trustees.
Market dynamics centric circulars issued in relation to the ILDS & NCRPS Regulations.
Numerous informal guidance / interpretative letters concerning the regulations.
Need of Now

The passing time, changing market dynamics & want of ease of business have led to a feeling of an indispensable need to merge & align the now extant regulations with an objective to:

Simplify & align the Regulations in line with the various circulars/guidance and various provisions of the regulations issued.
Improve the structure of the regulations in order to enhance readability
Identify policy changes in line with the present market practices and the prevailing regulatory environment and to ease doing business.
Enable availability of relevant information in one place on basis of following broad classifications:
Form a sync with the amendment in the Companies (Share Capital and Debentures) Rules, 2014 and Companies (Prospectus and Allotment of Securities) Rules, 2014 etc.
Type of Issuance: Public Issue or Private Placement
Instrument Type: Debt Securities, NCRPS, PNCPS, PDIs & Commercial Papers.
Merge all the existing circulars into a single operational circular.