The Securities and Exchange Board of India (Sebi) has laid out a new framework for the number of debt instruments by an issuer that can mature in a given financial year. The new norms come into effect immediately.
In a circular issued on Wednesday, the market regulator increased the maximum number of International Securities Identification Numbers (ISINs) that can mature annually from 14 to 17 for privately placed debt securities. The norms were previously published for consultation in August. An ISIN is a unique 12-digit code used to identify a specific security issue globally.
Of the 17 issues, entities can have up to 12 plain vanilla debt securities. Such securities can be secured or unsecured instruments. Once the total outstanding amount of plain vanilla debt maturing in a financial year touches ₹15,000 crore, one additional ISIN could be permitted for every subsequent ₹3,000 crore. This would allow companies with large repayment obligations to spread their redemptions more evenly through the year.
Another five ISINs would be available for structured debt, market-linked debt, floating-rate bonds, zero-coupon bonds and debt capital instruments.
The move is intended to help companies, especially non-banking financial companies (NBFCs), better manage their cash flows and prevent debt repayments from bunching up. The proposal comes after market participants told Sebi that current limits hamper liquidity management and exacerbate asset-liability mismatches.
Listing norms
Separately, Sebi eased listing norms for small-value debt issuers on Wednesday. Currently, issuers of debt securities or non-convertible redeemable preference shares, issued through private placement at a face value of ₹10,000, are required to appoint at least one merchant banker. Sebi’s circular now exempts them from this requirement, but only if they meet four conditions:
- The issue must be registered with or regulated by a financial sector regulator in India, including Sebi, the Reserve Bank of India, the Insurance Regulatory and Development Authority of India, and the Pension Fund Regulatory and Development Authority.
- It must also have been listed on a recognized stock exchange for at least a year and have no pending fines or penalties from Sebi or the stock exchanges for applicable listing-related non-compliance.
- The issuer must have no defaults over the previous three financial years and the current financial year on specified obligations, including its debt securities, non-convertible redeemable preference shares, securitized debt instruments, commercial papers, deposits or loans. An auditor’s certificate confirming this will have to be submitted to the stock exchange.
- The debt being issued must be senior or unsubordinated and secured by a first or pari passu charge on identifiable assets of the issuer. In simple terms, this means the debt must be top-priority and backed by specific company assets, ensuring these new investors hold a primary or equal claim to repayment alongside existing top-tier lenders if the company defaults.
These new rules also take effect immediately.