Does the listing of Non-Convertible Debt (NCDs) and Non-Convertible Redeemable Preference Shares (NCRPS) on a stock exchange change the status of a company from an unlisted to a listed company?
In today’s business environment, companies require finance for a variety of purposes, such as diversification, expansion, and working capital. One out of the many ways to raise funds is through the issuance of either listed or unlisted Non-Convertible Debt (NCD) and Non-Convertible Redeemable Preference Shares (NCRPS), which offer benefits such as liquidity, low risk, and fixed income (in the case of debt securities).
Key Question:
If a company lists its Non-Convertible Debt and Non-Convertible Redeemable Preference Shares, does it become classified as a Listed Company under the Companies Act, 2013 and the applicable SEBI Regulations?
Under the Companies Act, 2013
Section 2(52) of the Companies Act, 2013 defines a Listed Company as:
“A company which has any of its securities listed on any recognized stock exchange.”
Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.
According to this definition, any company that lists any of its securities on a recognized stock exchange is treated as a Listed Company.
Clarification:
However, the Ministry of Corporate Affairs via exercising the power conferred under proviso of the said definition has exempted the following class of companies shall not be treated as Listed Company:-
1. Public Company (Not Listed Equity Shares on stock exchange) but (A) Company which has listed its Non-Convertible Debt Securities on Private Placement Basis in accordance with SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. (B) Company which has listed its Non-Convertible Redeemable Preference Shares on Private Placement Basis in accordance with SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. (c) both categories of (i) an (ii) above.
2. Private Company which has listed its Non-Convertible Debt Securities on Private Placement Basis in accordance with SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
Result:
Even if a company lists its NCDs and NCRPS on a private placement basis, it will not be treated as a Listed Company under the Companies Act, 2013. Therefore, the company remains Unlisted despite the listing of its securities i.e. Non-Convertible Debt and Non-Convertible Redeemable Preference Shares under the provisions of the Companies Act, 2013.
Consequences/Benefits of Companies Not Being Treated as Listed Companies (Unlisted Companies)
1. CIN Code: The initial letter of the Corporate Identification Number (CIN) will not change from “U” (for Unlisted) to “L” (for Listed).
2. Master Data: On the company’s master data, its status will continue to be displayed as “Unlisted.”
3. Exemptions from Provisions: Many provisions of the Companies Act, 2013, applicable to listed companies, will not apply. This reduces regulatory burdens.
4. Cost and Time Savings: By remaining an unlisted company, there is a reduction in compliance costs and administrative time.
Under SEBI Regulations
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) defines a Listed Entity as:
“An entity that has listed, on a recognized stock exchange(s), designated securities issued by it or designated securities issued under schemes managed by it, in accordance with the listing agreement entered into between the entity and the recognized stock exchange(s).”
Designated Securities: means
- specified securities;
- Non-convertible debt securities;
- Non-convertible redeemable preference shares;
- Perpetual debt instruments;
- Perpetual non-cumulative preference shares;
- Indian depository receipts;
- Securitized debt instruments;
- security receipts;
- units issued by mutual funds;
- Zero Coupon Zero Principal Instruments; and
- Other securities specified by SEBI
Result
The entity which has listed its non-convertible debt and non-redeemable preference shares either on a private placement basis or public issue shall be treated as Listed Entity as per the provisions of the SEBI (LODR) Regulations, 2015 and thereby, require to comply with the relevant provisions of SEBI Regulations.
Conclusion
- Under the Companies Act, 2013, the company will remain Unlisted, even if it lists NCDs or NCRPS on a private placement basis.
- Under SEBI Regulations, the company will be considered a Listed Entity, and specific compliance requirements will apply.
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