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SEBI’S APPROACH TO NON-CONVERTIBLE SECURITIES DISCLOSURE
In a significant step to enhance the ease of doing business, Securities Exchange Board of India (“SEBI”) is planning to introduce measures to simplify disclosure requirements for Non-Convertible Securities (“NCS”) issuance. These measures will eliminate the need to disclose the PAN and personal addresses of issuers’ promoters in the offer document. This initiative is part of SEBI’s broader effort to ease disclosure regulations.
NON-CONVERTIBLE SECURITIES
Non-convertible securities are fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer relatively higher interest rates when compared to convertible debentures.
RELAXATION OF DISCLOSURE REQUIREMENTS FOR NCS ISSUANCE
Currently, the issue and listing of NCS mandates issuers to furnish detailed profiles of their promoters, including sensitive personal data. However, a recently published consultation paper by SEBI indicates a potential relaxation of these requirements. The proposal suggests replacing extensive disclosures with information about the issuer’s branches etc., accessible via a static QR code and a web link. This data would also be shared with the debenture trustee and be open for inspection, diverging from the current mandate of explicitly stating such details in the offer document.
REVISIONS IN TIMELINE AND SIGNATORY FLEXIBILITY
SEBI has recommended changes to the timing for revealing essential operational and financial characteristics to coincide with the period for providing financial information in the offer document. Furthermore, SEBI is seeking increased flexibility concerning the authorized signatories responsible for attesting these documents.
In a related measure aimed at ensuring communication with stock exchanges, entities with listed commercial paper will now need to confirm their fulfilment of payment obligations within one working day after a payment becomes due, a change from the existing two-day mandate.
PUBLIC FEEDBACK AND ANTICIPATED IMPACT
Public feedback on these proposals has been welcomed until May 30, 2024. These adjustments come from the union government’s budget declaration for financial year 2023-24, which prioritized simplifying, easing, and diminishing compliance expenses for stakeholders in the financial sector through a consultative process. SEBI’s proposals aim to enhance India’s financial markets by reducing hurdles and increasing transparency and making it appealing for issuers and investors.
CONSULTATION PAPER
The department of Debt and Hybrid Securities presents a consultation paper aimed at streamlining NCS regulations to foster an environment conducive to business.
The objective of this consultation paper is to seek suggestions from the public on proposals related to the ease of doing business for non-convertible securities. The honourable finance minister in the budget announcements for financial year 2023-24 made an announcement to simplify, ease and reduce cost of compliance for participants in the financial sector through a consultative approach.
To align the process of review with the budget announcement, SEBI constituted various working groups to recommend measures to simplify and ease compliances under various SEBI Regulations. Accordingly, a working group for the review of compliance requirements under SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (hereinafter ‘NCS Regulations’) recommended certain measures to promote the ease of doing business for issuance of non-convertible securities.
KEY PROPOSALS
- Deletion of Disclosure Regarding PAN and Personal Address– The consultation paper suggests removing PAN and personal address disclosures of promoters from offer documents. This aims to strengthen data privacy and streamline compliance. However, retaining disclosure of business and financial activities is advocated for informed decision-making.
- Disclosure of Time Period for Key Operational and Financial Parameters– The proposal aims to align disclosure timeframes for operational and financial parameters with those for financial information disclosures. This ensures consistency and facilitates comprehensive assessment by investors.
- Disclosure via QR Code and Weblink for Branch or Unit Details– The suggestion to provide branch or unit details through QR code and web-links enhance accessibility while reducing document clutter. However, ensuring transparency and ease of access for investors is crucial.
- Alignment of Disclosure Requirements for Project Cost– Aligning disclosure requirements with equity regulations aims at standardizing disclosures across securities. This promotes clarity and comparability, benefiting investors and issuers alike.
- Relaxation in Business Details Disclosure for Property Acquisition – Proposals seek to ease disclosure requirements for property acquisitions, balancing transparency with operational efficiency. clarifications on vendor disclosures and checklist integration aim to streamline compliance.
ANALYSIS
SEBI aims to safeguard investor interests and provide issuers with a streamlined and simple regulatory framework. These changes are expected to positively impact India’s capital markets, reflecting a recognition of the need for regulatory adaptation in market developments and stakeholder needs.
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