‘Advisory on disclosure of material impact of COVID–19 pandemic on listed entities under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’/ ‘LODR’)’
1. Effective date of circular: the circular came into effect from may 20, 2020
2. Purpose to issue the circular:
1. To assess the material impact of lock down due to Outbreak of COVID-19 pandemic on the business and operations of the Company.
2. The lockdown and consequent disruption in operations of the Company unforeseen, therefore in order to ensure the transparency and bridge the gap of Information available in the Public domain and information on the impact of Lock down on the operations of the Company..
3. Therefore, SEBI encouraged the Listed Entity to disclose the information material in nature in timely and cogent manner to Investors and Stakeholders.
4. Many listed entities have made disclosures under LODR Regulations,:
a. Intimating shutdown of operations owing to the pandemic and resultant lockdowns.
b. Actions taken towards sanitation, safety etc.;
However only small number of entities that have disclosed the financial impact of COVID -19 and consequent lock down. Therefore, in order to encouraged to disclose the financial impacts and relevant factors concerning operations of Company this circular issued.
5. To ensure that all investors have access to timely, adequate and updated information.
6. Entities are encouraged to evaluate the impact of the COVID-19 pandemic on their business, performance and financials, both qualitatively and quantitatively, to the extent possible and disseminate the same.
3. Existing provision in SEBI (LODR) Regulations ,2015 governing the disclosure of informations or events already material in nature:
Regulation 30 (1) Every listed entity shall make disclosures of any events or information which, in the opinion of the board of directors of the listed company, is material.
(3) The listed entity shall make disclosure of events specified in Para B of Part A of Schedule III, based on application of the guidelines for materiality, as specified in sub-regulation (4).
Para B Part A of Schedule III “Events which shall be disclosed upon application of the guidelines for materiality referred sub-regulation (4) of regulation (30):”
Disruption of operations of any one or more units or division of the listed entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc.
(4) (i) The listed entity shall consider the following criteria for determination of materiality of events/ information:
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
(c) In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.
(ii) The listed entity shall frame a policy for determination of materiality, based on criteria specified in this sub-regulation, duly approved by its board of directors, which shall be disclosed on its website.
Therefore, in view of above, the continuous lock down may disrupt the operations of the Company or any of its units or division in the material way. By applying the Materiality principle giving under Regulation 30(4) and Materiality policy of the Company, the listed Entity required to disclosed the impact.
An illustrative list of information that listed entities may consider while disclosing:
1. Impact of the COVID-19 pandemic on the business;
2. Ability to maintain operations including the factories/units/office spaces functioning and closed down;
3. Schedule, if any, for restarting the operations;
4. Steps taken to ensure smooth functioning of operations;
5. Estimation of the future impact of COVID-19 on its operations;
6. Details of impact of COVID-19 on listed entity’s –
i. capital and financial resources;
iii. liquidity position;
iv. ability to service debt and other financing arrangements;
vi. Internal financial reporting and control;
vii. supply chain;
viii. demand for its products/services
7. Existing contracts/agreements where non-fulfilment of the obligations by any party will have significant impact on the listed entity’s business;
8. Other relevant material updates about the listed entity’s business.
The above list is only guiding or illustrative list, the factors can be more than the above mentioned depending on the size, operations, nature of products, location of Business of the Company.
For Example: Construction Companies may face the following issues due to lock down
a. Liquidity Constraints
b. Ability to service debt (most of the Construction Company depends on borrowed fund).
2. Garment Industries:
a. demand for its products/services
b. supply chain;
3. A Labour-Intensive Industries like garments Industries, factories etc, where work from home is not that much possible, then Revenue from Operations may severely impacted.
Actionables on listed entities part:
1. To disclose the impact including financial impact on the operations and functioning of COVID -19 which is material in nature.
2. Regular updates, as and when there are material developments.
3. Listed entities may specify/include the impact of the COVID-19 pandemic on their financial statements, to the extent possible.
4. Depending on circumstances peculiar to a listed entity and on account of passage of time, the listed entity shall revisit, refresh, or update its previous disclosures.