Fund raising by issuance of Debt Securities by Large Entities - SEBI - SEBI/HO/DDHS/CIR/P/2018/144

CIRCULAR SEBI/HO/DDHS/CIR/P/2018/144 November 26, 2018 To All Listed Entities (whose specified securities or debt securities or NCRPS are listed on SEBI recognized Stock Exchanges) Dear Sir / Madam, Sub: Fund raising by issuance of Debt Securities by Large Entities 1. With a view to operationalising the Union Budget announcement for 2018-19, which, inter-alia, stated SEBI will also consider mandating, beginning with large entities, to meet about one-fourth of their financing needs from the debt market , SEBI came out with a discussion paper on July 20, 2018. Based on feedback received on the discussion paper and wider consultation with market participants including entities, the detailed guidelines for operationalising the above budget announcement are given below. 2. Applicability of Framework 2.1. For the entities following April-March as their financial year, the framework shall come into effect from April 01, 2019 and for the entities which follow calendar year as their financial year, the framework shall become applicable from January 01, 2020. Explanation: The term Financial Year' (FY) here would imply April- March or January-December, as may be followed by an entity. Thus, FY 2020 shall mean April 01, 2019 - March 31, 2020 or January 01, 2020 - December 31, 2020, as the case may be. 2.2. The framework shall be applicable for all listed entities (except for Scheduled Commercial Banks), which as on last day of the FY (i.e. March 31 or December 31): i. 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 ii. have an outstanding long term borrowing of ₹ 100 crores or above, where outstanding long-term borrowings shall mean any outstanding borrowing with original maturity of more than 1 year and shall exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies); and iii. have a credit rating of AA and above , where credit rating shall be of the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in; and in case, where an issuer has multiple ratings from multiple rating agencies, highest of such rating shall be considered for the purpose of applicability of this framework. 3. Framework 3.1. A listed entity, fulfilling the criteria as specified at para 2.2 above, shall be considered as a Large Corporate (LC) and such a LC shall raise not less than 25% of its incremental borrowings, during the financial year subsequent to the financial year in which it is identified as a LC, by way of issuance of debt securities, as defined under SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter ILDS Regulations ). Explanation: For the purposes of this circular, the expression incremental borrowings shall mean any borrowing done during a particular financial year, of original maturity of more than 1 year, irrespective of whether such borrowing is for refinancing/repayment of existing debt or otherwise and shall exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies). 3.2. For an entity identified as a LC, the following shall be applicable: i. For FY 2020 and 2021, the requirement of meeting the incremental borrowing norms shall be applicable on an annual basis. Accordingly, a listed entity identified as a LC on last day of FY 2019 and FY 2020, shall comply with the requirement as laid down under para 3.1, by last day of FY 2020 and FY 2021, respectively. Provided that in case where a LC is unable to comply with the above requirement, it shall provide an explanation for such shortfall to the Stock Exchanges, in the manner as prescribed at para 4. ii. From FY 2022, the requirement of mandatory incremental borrowing by a LC in a FY will need to be met over a contiguous block of two years. Accordingly, a listed entity identified as a LC, as on last day of FY T-1 , shall have to fulfil the requirement of incremental borrowing for FY T , over FY T and T+1 . However, if at the end of two years i.e. last day of FY T+1 , there is a shortfall in the requisite borrowing (i.e. the actual borrowing through debt securities is less than 25% of the incremental borrowings for FY T ), a monetary penalty/fine of 0.2% of the shortfall in the borrowed amount shall be levied and the same shall be paid to the Stock Exchange(s). 4. Disclosure requirements for large entities 4.1. A listed entity, identified as a LC under the instant framework, shall make the following disclosures to the stock exchanges, where its security(ies) are listed: i. 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 . ii. 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 . 4.2. The disclosures made in terms of para 4.1 shall be certified both by the Company Secretary and the Chief Financial Officer, of the LC. 4.3. Further, the disclosures made in terms of para 4.1 shall also form part of audited annual financial results of the entity. 4.4. The details of the framework as mentioned under para 3 and disclosure requirements as mentioned under para 4.1, are illustrated in Annexure C. 5. Responsibilities of Stock Exchanges 5.1. The Stock Exchange(s) shall collate the information about the LC, disclosed on their platform, and shall submit the same to the Board within 14 days of the last date of submission of annual financial results. 5.2. In the event of a short fall in the requisite borrowing, the Stock Exchanges shall collect the fine as mentioned at para 3.2(ii). The fine so collected shall be remitted by the stock exchanges to SEBI IPEF fund within 10 days from the end of the month in which the fine was collected. 6. This Circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with regulation 101(2) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. 7. This Circular is available on SEBI website at www.sebi.gov.in under the categories Legal Framework and under the drop down Corp Debt Market . Yours faithfully, Richa G. Agarwal Deputy General Manager Department of Debt and Hybrid Securities Tel No.: 022-2644 9596 Email id: [email protected] Annexure A Format of the Initial Disclosure to be made by an entity identified as a Large Corporate (To be submitted to the Stock Exchange(s) within 30 days from the beginning of the FY) Sr. No. Particulars Details 1 Name of the company 2 CIN 3 Outstanding borrowing of company as on 31st March/ 31st December, as applicable (in Rs cr) 4 Highest Credit Rating During the previous FY along with name of the Credit Rating Agency 5 Name of Stock Exchange# in which the fine shall be paid, in case of shortfall in the required borrowing under the framework We confirm that we are a Large Corporate as per the applicability criteria given under the SEBI circular SEBI/HO/DDHS/CIR/P/2018/144 dated November 26, 2018. (Signature) Name of the Company Secretary Designation Contact Details (Signature) Name of the Chief Financial Officer Designation Contact Details Date - dd/mm/yyyy # - In terms para of 3.2(ii) of the circular, beginning F.Y 2022, in the event of shortfall in the mandatory borrowing through debt securities, a fine of 0.2% of the shortfall shall be levied by Stock Exchanges at the end of the two-year block period. Therefore, an entity identified as LC shall provide, in its initial disclosure for a financial year, the name of Stock Exchange to which it would pay the fine in case of shortfall in the mandatory borrowing through debt markets. Annexure B1 Format of the Annual Disclosure to be made by an entity identified as a LC (To be submitted to the Stock Exchange(s) within 45 days of the end of the FY) (Applicable for FY 2020 and 2021) 1. Name of the Company: 2. CIN: 3. Report filed for FY: 4. Details of the borrowings (all figures in Rs crore): S.No. Particulars Details i. Incremental borrowing done in FY (a) ii. Mandatory borrowing to be done through issuance of debt securities (b) = (25% of a) iii. Actual borrowings done through debt securities in FY (c) iv. Shortfall in the mandatory borrowing through debt securities, if any (d) = (b) - (c) {If the calculated value is zero or negative, write nil } v. Reasons for short fall, if any, in mandatory borrowings through debt securities (Signature) Name of the Company Secretary Designation Contact Details (Signature) Name of the Chief Financial Officer Designation Contact Details Date - dd/mm/yyyy Annexure B2 Format of the Annual Disclosure to be made by an entity identified as a LC$ (To be submitted to the Stock Exchange(s) within 45 days of the end of the FY) (Applicable from FY 2022 onwards) 1. Name of the Company: 2. CIN: 3. Report filed for FY: T 4. Details of the Current block (all figures in Rs crore): S.No. Particulars Details i. 2-year block period (Specify financial years) (T), (T+1) ii. Incremental borrowing done in FY (T) (a) iii. Mandatory borrowing to be done through debt securities in FY (T) (b) = (25% of a) iv. Actual borrowing done through debt securities in FY (T) (c) v. Shortfall in the borrowing through debt securities, if any, for FY (T-1) carried forward to FY (T). (d) vi. Quantum of (d), which has been met from (c) (e) vii. Shortfall, if any, in the mandatory borrowing through debt securities for FY (T) {after adjusting for any shortfall in borrowing for FY (T-1) which was carried forward to FY (T)} (f)= (b)-[(c)-(e)] {If the calculated value is zero or negative, write nil } 5. Details of penalty to be paid, if any, in respect to previous block (all figures in Rs crore): S. No. Particulars Details i. 2-year Block period (Specify financial years) (T-1) ,(T) ii. Amount of fine to be paid for the block, if applicable Fine = 0.2% of {(d)-(e)}# (Signature) Name of the Company Secretary Designation Contact Details (Signature) Name of the Chief Financial Officer Designation Contact Details Date - dd/mm/yyyy $ - In cases, where an entity is not categorised as LC for FY (T), however was LC for FY (T-1), and there was a shortfall in the mandatory bond borrowing for FY (T-1), which was carried forward to FY (T), the disclosures as prescribed in this annexure shall be made by the entity for FY (T). #- (d) and (e) are same as mentioned at 4(v) and 4(vi) of this annexure. Annexure - C The illustration given below is only for the purpose of demonstration and shall not be construed in any other manner. Company Name XYZ Credit Rating of unsupported bank borrowing or plain vanilla bonds AA or equivalent Security Listed Equity shares and/or debt securities and/or NCRPS Financial Year format 01st April 31st March For FY 2020 and 2021 (all figures in Rs crore) Current FY 2020 2021 Outstanding borrowing as on March 31st of previous FY 1000 1200 Whether framework applicable? Yes Yes Incremental Borrowing in the current FY (a) 400 500 Mandatory borrowing through debt securities in the current FY (b) = 25% of (a) 100 125 Actual borrowings done through debt securities in the current FY (c) 80 150 Shortfall in mandatory borrowing through debt securities, if any, for the current FY (d)= (b)-(c) 20 - Compliance Status Shortfall, hence explanation to be provided. Complied with the requirement of 25% borrowing through issuance of debt securities. From FY 2022 onwards (all figures in Rs. Cr) Current FY 2022 2023 2024 2025 Outstanding borrowing as on March 31st of previous FY 800 400 80 120 Whether framework is applicable for current FY? Yes Yes No Yes Incremental Borrowing in the current FY (a) 400 200 40 100 Mandatory borrowing through debt securities in the current FY (b) = 25% of (a) 100 50 Not Applicable 25 Block for compliance of the mandatory borrowing through debt securities FY 2022 and FY 2023 FY 2023 and FY 2024 Not Applicable FY 2025 and FY 2026 Actual borrowings done through debt securities in the current FY (c) 50 75 10 25 Shortfall of previous FY {for first year of the previous block} carried forward to current FY (d) - 50 25 Nil Quantum of (d), which has been met from (c) (e) - 50 10 Nil Shortfall, if any, in the mandatory borrowing through debt securities for the current FY {after adjusting for any shortfall in borrowing for previous FY, carried forward to current FY} (f)= (b)-[(c)-(e)] 50 25 Not Applicable Nil Fine, to be paid {in case the shortfall of previous FY, if any, is not adjusted completely against the debt securities borrowings of current FY} 0.2% of [(d)-(e)] Nil Nil 0.2% of ₹ 15 crore = ₹ 3 lakhs Nil Compliance Status For previous block - NA For current block - Shortfall of ₹ 50 crore carried forward to FY 2023 For previous block - ₹ 50 cr of borrowing shortfall for FY 2022 adjusted towards debt market borrowings of FY 2023. Complied For current block - Shortfall of ₹ 25 crore carried forward to FY 2024 For previous block - ₹ 10 cr of borrowing shortfall for FY 2023 adjusted towards debt market borrowings of FY 2024. Thus, remains a borrowing shortfall of ₹ 15 crore for FY 2023. Thus, fine of ₹ 3 lakh to be paid by XYZ. For current block - Framework not applicable. For previous block - Framework not applicable. For current block - Complied with by the end of first year