Sebi Enhances Transparency in Listing Rules for Non-Convertible Debt Securities

September 22, 2023

The Securities and Exchange Board of India (Sebi) has made significant amendments to the rules governing the listing of non-convertible debt securities issued by listed entities. These changes, which come into effect on January 1, 2024, are designed to bolster transparency in price discovery, offer more comprehensive disclosures to investors and the market, and prevent confusion related to International Securities Identification Numbers (ISINs) while mitigating the risk of potential mis-selling of unlisted bonds.

Listing Requirement for Non-Convertible Debt Securities

Under the newly amended rules, listed entities that have outstanding non-convertible debt securities must list any subsequent issuances of such securities on stock exchanges. This requirement ensures that all new issuances of non-convertible debt securities will be subject to listing, offering greater transparency and accountability in the market.

Exemptions from Listing Requirement

However, Sebi has provided exemptions for certain types of issuances from the mandatory listing requirement. These exemptions apply to capital gains tax debt securities issued under Section 54EC of the Income Tax Act, non-convertible debentures (NCDs) where parties have agreed to hold the securities until maturity, ensuring they remain unencumbered, and NCDs issued in response to a court order or regulatory mandate from financial sector regulators such as Sebi, RBI, IRDA, PFRDA, or IBBI.

Enhanced Disclosure Requirements

Listed entities seeking to issue non-convertible debt securities must adhere to new disclosure requirements. They are now obligated to provide stock exchanges with comprehensive details of these securities, including crucial information such as interest rates and the maturity period. These measures aim to promote informed investment decisions and offer increased clarity to investors.

Additional Recent Changes

In addition to the aforementioned amendments, Sebi has recently introduced a new framework prohibiting listed entities with more than 200 non-qualified institutional buyer holders of non-convertible debt securities from voluntarily delisting. Under this rule, entities are required to secure consent from all holders of such securities within 15 working days upon receiving a delisting notification. This change reinforces investor protection and streamlines the delisting process.

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