SEBI Relaxes Norms for Mandatory Bond Issuance for Large Corporates

Markets regulator, the Securities and Exchange Board of India (SEBI), eased norms for borrowings through the issuance of debt securities for large corporates to meet their financing needs.

As per the rule, entities qualified as Large Corporates (LCs) are necessitated to meet 25% mandatory borrowing from bonds.

Typically, LCs are those that have an outstanding long-term borrowing of about Rs 100 crore with a credit rating of AA and above, including those having their debt securities listed on a stock exchange.

According to the new framework, the market regulator has announced incentives for LCs in case of surplus in the requisite borrowings and moderated disincentives if they are unsuccessful in raising about 25% of their incremental borrowings via debt securities.

In a scenario where there is a shortfall or surplus by way of issuance of debt securities, additional or lower contributions, respectively, to the core Settlement Guarantee Fund (SGF) of the Limited Purpose Clearing Corporation (LPCC) need to be made by the LC.

At present, in case there is a shortfall in the requisite borrowings at the end of three years, a monetary penalty of 0.2% of the shortfall in the borrowed amount is generally levied.

With an aim to facilitate ease of compliance and ease of doing business, the market regulator has retained the requirement that this particular compliance with the framework will be managed over a contiguous block of about three years.

In addition, SEBI has replaced the term ‘incremental borrowings’ with ‘qualified borrowings’.

This new framework will be applicable from April 1, 2024, for LCs following April-March as their financial year. On the other hand, the same will be applicable from January 1, 2024, for LCs that adhere to January-December as their financial year.

Additionally, SEBI has stated that large corporates will be required to comply with the requirement of raising 25% of their incremental borrowings done during financial years 2022, 2023, and 2024, respectively, by way of issuance of debt securities till March 31, 2024. In case a corporate fails to comply with this, they will have to furnish a one-time explanation in their annual report.