SEBI Circular No. CIR/IMD/DF1/48/2016 dated April 21, 2016 (“EBP Circular”) with regards to Electronic book mechanism for issuance of debt securities on private placement basis

Disclaimer: These FAQs are prepared with a view to guide market participants on Electronic book mechanism for issuance of debt securities on private placement basis For full particulars of laws governing the abovementioned circular, please refer to the Acts/ Regulations/Guidelines/ Circulars, etc. appearing under the Legal Framework Section of SEBI website i.e. Any queries about the EBP Circular can be addressed to the Investment Management Department- Division of Funds 1, SEBI Bhawan, C-4 A, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai – 40051. For an interpretation of a specific provision of the Regulations, informal guidance may be sought in terms of SEBI (Informal Guidance) Scheme 2003.

1. Who is an Electronic Book Provider (EBP)?

EBP is a web based portal for online bidding of private placement of debt securities which are proposed to be listed on exchanges. This service shall be provided by recognised Stock Exchanges. As of now, NSE and BSE are approved to provide this service.

2. Is it compulsory to use electronic book mechanism for all private placement of debt securities in primary market?

i. No. As per SEBI circular CIR/IMD/DF1/48/2016 dated 21 April, 2016 electronic book mechanism would be mandatory for all private placements of debt securities in primary market with an issue size of Rs. 500 crore and above. This shall include green shoe option, if any. However, the said mechanism is voluntary in case of issue size being below Rs.500 crore, inclusive of green shoe option, if any.

ii. The requirement of using electronic book mechanism shall also be applicable for those tranche issue(s) which individually may be less than Rs 500 crore, however is/ are part of a shelf offer, which including green shoe option, is more than Rs 500crore.

iii. Further, in case, the issuer comes with multiple issues in a financial year which are individually less than Rs. 500 crore however, the aggregate issue size in the same year crosses Rs.500 crore, in such scenario, issuer shall use EBP mechanism for any incremental private placement which takes aggregate issue size in the year equal to Rs.500 crore or above.

iv. The abovesaid conditions shall be applicable to all the issues made after July 01, 2016.

v. Further, the mechanism is voluntary for those issues of debt securities which have a single investor and where the coupon rates are fixed. However arrangers acting as underwriters shall not be considered as single investors in these cases.

3. For issue size below Rs.500 crore, is it compulsory to upload details of allotment to EBP?

For issues below Rs.500 crore, issuer shall upload details as mentioned in Clause 8.15 of the EBP Circular with all EBPs, till the time a consolidated repository for such issuances is notified.

4. Will the provision of this circular be applicable for structured products?

No. Currently the provisions of the circular are applicable only for the private placement of Non-convertible debentures which is issued and proposed to be listed as per SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and shall not cover the structured products as defined in the SEBI circular Cir. /IMD/DF/17/2011 dated September 28, 2011.

5. Whether issuers can use Uniform or Multiple price method for allocation?

Yes, it is at the discretion of the issuer subject to disclosure of the same in the PPM.

6. Whether issuers can use the platform for the re-issuance of the debt securities?

Yes, however it is applicable only to the securities as mentioned in FAQ No.4.

7. Are issuers obligated to mention the Green Shoe option in Private Placement Memorandum (PPM)?

Yes, if an issuer intend to exercise green shoe option, it shall compulsorily disclose the same in their PPM. Further, there may be two scenarios:

i. In case, the issue is open for just one day, the issuer may choose to indicate the exact green shoe amount.

ii. In case of substantially large issue (magnitude of which may be determined by EBP in consultation with issuer), there may be a portion of green shoe option which remain unsubscribed on the same day. In such case, the issue may be kept open for a period of not more than two days. However, the issuer shall indicate the green shoe amount in such an issue.

8. Who are eligible bidders/participants in Electronic Book mechanism?

i. The eligible bidders/participants in Electronic Book Mechanism shall be identified as follows

a) An investor shall first get enrolled with the EBP (this is a one-time exercise where the enrolment with EBP is valid till the time such enrolment is annulled or rescinded).

b) Subsequently, for participating in any particular bid, the investor (other than QIBs) shall be identified as eligible bidder/participant. The investor shall pre-register for the particular issue and in case of preregistrations exceeding 200 in a year (cumulatively across all the issues of a particular issuer), determination of eligible bidder shall be in terms of the clause 8.4 of the EBP circular.

c) However, for QIBs which are enrolled with an EBP, the requirement of being identified as eligible bidder/participant for any particular issue is not applicable as they become eligible bidder/participant automatically. (Refer clause 8.4 of the EBP circular).

ii. For an entity which acts/proposes to act as arranger or sub-arranger, who bids on behalf of other participants or bids on proprietary basis or both, following shall be followed:

a) Such an entity shall get enrolled with EBP and be appointed as an arranger by the issuer/sub-arranger by the arranger.

b) The participants on behalf of whom the arranger/sub-arranger places bid shall also be enrolled with the EBP and shall be identified as eligible bidders (refer point 8(i)(b) above).

iii. In addition to above, if an investor(s) who has/have not been enrolled with EBP but have been identified by the issuer to participate in a particular issue, may enter their bids through arranger(s)/sub-arranger(s), which is/are enrolled with the EBP. However, such investors shall get enrolled with EBP prior to allotment in such issue.

9. Who will be responsible for the Investor KYC?

i. The Arrangers and the Sub-Arrangers who enter bids on behalf of an eligible client or investor will need to ensure that the necessary KYC is completed by them before placing the bids on the platform.

ii. In case of Investor which directly access the EBP platform, the KYC can be obtained by the EBP from intermediaries which are registered with KRAs such as DPs, etc.

10. Who can act as an arranger?

Merchant Bankers, RBI registered Primary Dealers or any other SEBI registered intermediaries as notified by SEBI from time to time, may act as the arranger.

11. Are arrangers enrolled with EBP in different categories?

No all the type of investors are enrolled with the EBP in same category.

12. What is PPM?

PPM (Private Placement Memorandum) is a document which gets circulated to eligible bidders which contains all the information except exact amount to be raised and the coupon details.

13. Who has access to the issue specific information?

Once the issue is set-up by the issuer,

i. in case of QIBs, all the QIBs enrolled with the EBP would be able to access the issue specific information.

ii. all the Non-QIBs which are identified as eligible bidders shall be able to access such information.

14. What should be the minimum amount of bide size?

The minimum amount of bide size shall be equal to or more than the amount as specified by the issuer in the PPM.

15. How does bidder ensure that the bid has been successfully entered?

An acknowledgement number will be generated against each bid entered by the participant to identify the bidding details inputted by them.

16. Who is an underwriter?

An underwriter, for the purpose Electronic Book Mechanism, shall be an arranger who on behalf of its investors places consolidated bids and does not intend to take such debt securities on its books. In such cases, the funds get transferred from the investors account and securities get credited in the investors account directly.

Further, the definition of underwriter as provided in the Regulation 2 (F) of SEBI (underwriters) Regulations, 1993, shall not applicable for the purpose Electronic Book Mechanism.

17. What is a consolidated bid and who can place these bids?

The Arranger has an option to put consolidated bids on behalf of its investors, however these investors shall be identified as eligible bidders/participants in terms of the EBP Circular. The details of the investors, on whose behalf the bids were placed, shall be disclosed post finalization and closure of the bidding but before allotment. Arranger’s proprietary bids can also form part of the consolidated bids apart from bids on behalf of their investors.

18. Will the bidder be able to modify/ cancel the bid?

Yes, the bidder may modify/ cancel the bid during the bidding period.

19. Will the bid details be displayed by EBP?

EBP at the end of bidding time window, shall on an anonymous basis only, disclose the aggregate volume data providing yield/price, amount of bids including the amount of over-subscription, total bids received, rating and category of investors.

20. Will the details be available on EBP website post allotment?

EBP shall upload on its website details like coupon rate, yield, credit rating, category of investors, amount raised etc. However, such details shall be disclosed on anonymous basis.

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