What Are SEBI’s Key Proposals To Overhaul Norms For High-Value Debt Listed Entity?

The Securities & Exchange Board of India (SEBI) released a consultation paper as it plans to overhaul the corporate governance norms for listed entities with ‘high-value’ debt.

India’s capital markets regulator has sought public comments on the proposed review on the corporate governance norms for ‘high-value’ debt listed entity (HVDLE) by 22 February, according to the SEBI’s consultation paper.

HVDLE is a listed entity, whose outstanding value of listed non-convertible debt securities (NCDs), is 500 crore rupees ($60.50 million) and above.

The proposed review of norms comes after HVDLEs sought exemptions on certain listing obligations due to the challenges faced by them in complying with the regulations.

Following are the key proposals mentioned in the SEBI’s consultation paper:

RELATED PARTY TRANSACTIONS (RPTs)

Where 90% Or More Shareholders Are Related Parties

Applicability

• The proposal applicable to HVDLEs having:

  • Only listed NCDs, and

  • 90% or more of the shareholders in number are related parties.

Notice & Response

• Company to send a copy of agenda item regarding RPTs to the debenture holders.

• Debenture holders to submit their objection, if any, in writing or through electronic mode within seven days from the date of the dispatch of agenda item.

Scrutiny By Company Secretary

• Company to get the responses scrutinized by a practicing company secretary (PCS) and obtain a certificate.

• If there’s no response from the debenture holders, then the PCS should provide a certificate to that effect.

Procedure For Board Of Directors

• If ‘objections’ are received from the debenture holders holding 75% or more in value, based on the number of responses received, then the board should withdraw the agenda item related to RPTs.

• If there’s no response from any debenture holder, then the RPTs agenda should be placed before the shareholders in the general meeting for approval, based on the certificate issued by the PCS.

Approval By Shareholders

• All shareholders, including the shareholders who are related parties, can vote on such RPTs.

RATIONALE FOR THE PROPOSAL

The SEBI said that one common factor in major corporate wrongdoings was that they were allegedly carried out by persons with the ability to influence the decisions of the company.

Shell or apparently unrelated companies, controlled directly or indirectly, by such persons were purportedly used to siphon off large sums of money through the use of certain innovative structures, thereby circumventing the regulatory framework of RPTs, it added.

The regulator said that apart from the use of circular transactions, companies appear to have diluted or circumvented the requirements under their policy on RPTs by procuring approvals for continuous lending to group companies. Hence, there is an imperative need to ensure that RPTs of all listed entities are regulated, it noted.

REVIEW OF APPLICABILITY CONTINUITY

The regulator said the current regulations provide that the corporate governance norms will continue to apply to a HVDLE even when the outstanding amount of listed NCDs falls below the specified threshold of 500 crore rupees.

However, there is no specified period for which a HVDLE should continue to comply with such provisions, once the outstanding amount of listed NCDs falls below the specified threshold, it added.

Proposal

• Once the regulations become applicable to a HVDLE, they will continue to remain applicable until such time the outstanding value of listed NCDs of such entity reduces and remains below the specified threshold for three consecutive financial years.

• Outstanding amount to be re-viewed on the last day of each financial year.

The comments can be sent by e-mail to: pradeepr@sebi.gov.in, kirand@sebi.gov.in and akanshag@sebi.gov.in, it said.

Last year, the SEBI released operational guidelines related to the ‘scheme of arrangement’ by entities, which have listed their NCDs or non-convertible redeemable preference shares (NCRPS).

The regulator had also rejigged several rules, including buyback of securities, provisions related to tenure of auditor and registration of foreign portfolio investors.

(Note: $1 = 82.6487 Indian rupees)