In recent years, number of Non-Banking Finance Companies (NBFCs) are resorting to issue Non-Convertible Debentures on private placement basis. Issue of NCDs through private placement became attractive way to raise funds for NBFCs, for the following reasons:
1. No need to create Debenture Redemption Reserve
2. Where a NBFC intends to issue NCDs with max subscription Rs. 1 crore and above (which is generally the case), creation of security is at the discretion of the issuer.
3. NCDs issued by NBFCs, even if unsecured, shall not be treated as public deposit for the purpose of provisions of the Companies Act, 2013.
4. Sub-rule 2 of Rule 14 of the Companies (Share Capital & Debentures) Rules, 2014 capping number of subscribers to 200, is not applicable to NBFCs.
NBFCs shall have Board approved Policy on Resource Planning which, inter-alia, shall cover the planning horizon and the periodicity of private placement. The terms of the issue must be in line with the said Policy.
1. The exercise of issue of NCDs starts with identification of select group of persons, known as “Identified Persons” or IPs.
2. Private Placement Letter of Offer and Application need to be prepared. Such Letter of offer shall contain details provided in Form PAS-4.
3. Notice of Board Meeting shall be sent to the Directors at least seven days prior to the meeting as required under SS-1.
4. The Board Meeting shall be conducted accordingly to pass the following resolutions:
(i) Resolution for increase in borrowing limit under section 180(3)(c) of the Companies Act, 2013, if it is not sufficient to cover the debenture issue subject to approval of members at General Meeting
(ii) Approval of Letter of Offer and Application. If require, also get the same passed at General Meeting
(iii) Resolution for issue of debentures under section 179(3)(c) of the Companies Act, 2013
(iv) Opening of separate bank account to deposit application money received
5. If company needs to hold a General Meeting, a notice of 21 clear days need to be given to the members entitled to attend the meeting.
6. Holding General Meeting and pass the following resolutions as special resolution:
(i) Resolution for increase is borrowing limit under section 180(3)(c) of the Companies Act, 2013.
(ii) Resolution for issue of debentures and authorizing Board for the same
7. To file Form MGT-14 within 30 days of passing of Special Resolution/Board Resolution as the case may be under section 117 of the Companies Act, 2013.
8. A separate bank account be opened to deposit subscription money. Such money can be utilised only after filing return of allotment in prescribed form (PAS-3). Further such money shall not be utilised for any purpose other than – (a) for adjustment against allotment of securities; or (b) for the repayment of monies where the company is unable to allot securities.
9. To obtain consent of Debenture Trustee(s) before their appointment as such.
10. To appoint Debenture Trustee(s). The said appointment shall be made before issue of Letter of Offer.
11. To issue Letter of Offer and Application form to Identified Persons. Before sending the Letter of offer to IPs, one has to ensure that relevant Special Rresolution/Board Resolution as the case may be, be filed with ROC.
12. To receive application money along with duly filled-in application. The application money shall be kept deposited in the separate bank account opened for the purpose.
13. The company has to allot NCDs within 60 days from the date of receipt of application money.
14. Return of Allotment in Form PAS-3 to be filed within 15 days from the date of allotment.
15. A Debenture Trust Deed to prepared and get it stamped with appropriate amount. If security is created by this Deed, the stamp duty according to local Stamp Act need to be paid.
16. A Debenture Trust Deed need to be executed within 60 days from the date of allotment.
17. A Return for registration of charges in Form CHG-9 to be filed with ROC within 30 days from the date of creation of charge.
18. If Debentures are to be listed, then they shall be compulsorily issued in demat mode. Otherwise physical certificate can be issued. A stamp duty @ 0.005% ad valorem shall be paid.
19. A credit rating at least from one of the credit rating agencies must be obtained. The company has to furnish the details of credit rating in the shelf disclosure document.
20. A Listing Application to be submitted to Stock Exchange(s) within 15 days from the date of allotment.
21. To pay regulatory fee to Stock Exchange(s)
22. To file Shelf Disclosure Document in the specified format which will be valid for 180 days from the date of filing the same with Stock Exchange(s).
23. Issue of ISIN and listing permission by Stock Exchange(s).
24. The above are indicative steps and suitable changes may be made on case to case basis.