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9 July 2021
Recent developments by SEBI on Capital Market activities
 
The Securities and Exchange Board of India (SEBI), vide its board meeting held on 29 June 2021, took certain decisions relating to various capital market issues. Further, pursuant to the circular dated 6 July 2021, SEBI has prescribed a standard operating procedure for listed subsidiary companies desirous of getting delisted through a scheme of arrangement wherein the listed holding company and the listed subsidiary are in the same line of business. We have summarized key provisions as under:
 
 
SEBI Board Meeting dated 29 June 2021
 
Review and Merger of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013 into a single Regulation – SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021

SEBI considered and approved the proposals to introduce a single regulation, known as– SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. The major provisions of the new Regulations are as under:
  • Issuers other than unlisted Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs) who are in existence for less than three years have been facilitated to tap the bond market subject to certain conditions;
  • The requirement to have a minimum rating of AA- for public issuance of non-convertible redeemable preference shares (NCPRS) has been done away with in requirement;
  • The requirement of a minimum tenure of three years for public issuance of NCRPS has been removed, thus providing flexibility to the issuers to structure their issuance as per their resource requirement;
  • The restriction of not more than four issuances of debt securities in a year through a single shelf prospectus has been done away with, to enable issuers to raise funds quickly without filing a separate prospectus each time;
  • The option for call and put has been introduced in case of debt securities issued on a private placement basis. This will provide greater flexibility to the issuers and investors of debt securities and NCRPS as well;
  • Furthermore, the period for the exercise of call and put option has been brought down to 12 months from 24 months in order to provide increased flexibility, both to issuers and investors;
  • Issuers who have cured the default in payment of interest/dividend/redemption amount to raise funds through non-convertible securities have been permitted to file shelf prospectus post such curing of default;
  • In order to encourage public issuances of debt securities, the present stipulation that the minimum size of INR 1 billion has been done away with;
  • The provision of the creation of charge on the assets and properties of the issuer has been harmonized with the Companies Act. This will provide greater flexibility to the issuers for the creation of charge;
  • The requirement of an abridged prospectus has been streamlined to around 10 pages from over 50 pages in order to enhance readability for the investor.
Review of Regulatory provisions related to Independent Directors

The Board approved amendments to SEBI(Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) pertaining to regulatory provisions related to Independent Directors (IDs), which include the following:
  • Appointment/Re-appointment and Removal of IDs shall be through a special resolution of shareholders for all listed entities;
  • The process to be followed by the Nomination and Remuneration Committee (NRC), while selecting candidates for appointment as IDs, has been elaborated and made more transparent;
  • The composition of NRC has been modified to include 2/3rd IDs instead of the existing requirement of the majority of IDs;
  • Shareholder approval for the appointment of all directors including IDs shall be taken at the next general meeting, or within three months of the appointment on the Board, whichever is earlier;
  • A cooling-off period of three years has been introduced for key managerial personnel (and their relatives) or employees of the promoter group companies for appointment as an ID;
  • The entire resignation letter of an ID shall be disclosed along with a list of her/his present directorships and membership in board committees;
  • Audit Committee - At least 2/3rd of the members of the audit committee shall be independent directors and all related party transactions shall be approved by only Independent Directors on the Audit Committee;
  • These amendments shall be made applicable with effect from 1 January 2022.
  
SEBI Circular dated 6 July 2021

Standard Operating Procedure for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement wherein the listed holding company and the listed subsidiary are in the same line of business
  • SEBI, vide notification dated 10 June 2021, has notified the amendments made to the SEBI (Delisting of Equity Shares) Regulations, 2021 wherein, in Chapter VI, Part C, and Regulation 37, special provisions for a listed subsidiary company getting delisted through a scheme of arrangement have been inter-alia inserted with respect to a listed holding company and the listed subsidiary company who are in the ‘same line of business.’
  • Accordingly, vide present circular, SEBI has clarified ‘same line of business’ as follows: 
    1. The principal economic activities of both Holding company and Subsidiary Company are under the same Group (3-digit numeric code) under the National Industrial Classification (NIC) Code 2008;
    2. Not less than 50% of revenue from the operations of the listed holding and listed subsidiary company must come from the same line of business as per last audited annual financial results submitted by both the companies in compliance with SEBI (LODR) Regulations, 2015;
    3. Not less than 50% of the net tangible assets of the listed holding and listed subsidiary must have been invested in the same line of business as per last audited annual financial results submitted by both the companies in compliance with SEBI (LODR) Regulations, 2015;
    4. In case of change of name of the listed entities, within the last one year, at least 50% of the revenue, calculated on a restated and consolidated basis, for the preceding one full year has to be earned by it from the activity indicated by its new name;
    5. The listed holding company and the listed subsidiary have to provide a self-certification with respect to both the companies being in the same line of business.
All of the above mentioned criteria (i.e., sr. no. 2.1 to 2.5) shall be certified by the Statutory Auditor and SEBI Registered Merchant Banker.
Our Comments
New regulations regarding the issuance of non-convertible securities will enable issuers who propose to list debt securities purely on a private placement basis but who do not have a three-year existence history. It offers a greater amount of flexibility to issuers who may not qualify for certain parameters but will be able to raise funds through the private placement of non-convertible securities. Further, consolidated regulations for the issuance of non-convertible securities will offer ease of reference for issuers while following the issue process and ensuring compliances in accordance thereof. Provisions relating to independent directors are made more transparent and disclosure-oriented. By way of circular regarding the delisting of a subsidiary company, the SEBI has sought to clarify ‘same line of business.’ A certificate from the statutory auditor and merchant banker regarding meeting the criteria of ‘same line of business’ seems to be stringent from an administrative and compliance point of view.
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