SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
SMD/POLICY/CIR-/97
September 26, 1997
To
Managing Director/ Executive Director/
of all Stock Exchanges.
Dear Sir,
Sub: Listing of debt instruments without listing of equity.
Vide their letter F.No.1/10/SE/94 dated July 20, 1994, the Government of India, in exercise of powers vested in Rule 19 (7) of the Securities Contracts (Regulations) Rules, 1956 exempted pure debt securities which have an investment grade credit rating from the applicability of Rule 19 (2)(b) of the said Rules and thereby permitted the listing of such pure debt instruments issued on a private placement basis. In extension of the on-going need to broaden the debt market and with a view to enable infrastructure projects and municipal corporations to raise resources through debt instruments, SEBI had approved the proposal to permit listing of debt security raised through a public issue, without the pre-existing requirement of prior listing of equity and accordingly directions were issued to stock exchanges vide letter no. SMD/POLICY/5719/96 dated December 23, 1996.
Clarifications have been sought on the scope of the SEBI directions issued on December 23, 1996 as to whether it would cover corporates or only infrastructure companies and municipal corporations, and further whether the directions also cover debt instruments convertible into equity.
The SEBI Board has considered the above matters. It has earlier been decided that the pre-existing requirement of prior listing of equity should be waived in respect of debt instruments issued by infrastructure companies and municipal corporations.
Further, it has now also been decided that the exemption permitting listing of debt without the pre-existing requirement of prior listing of equity would cover debt instruments fully or partly convertible into equity issued by infrastructure companies, and pure debt instruments issued by municipal corporations. However, the above exemption would be available only if the following conditions are fulfilled :
The issue of debt instruments shall be made through a public offer and shall comply with the Rules, Regulations and Guidelines issued by SEBI from time to time.
1. The instruments, irrespective of the maturity shall carry an investment grade credit rating which shall be disclosed in the Prospectus.
2. The instruments shall be fully secured by creating appropriate security in favour of the Trustees, irrespective of the maturity of the instruments.
3. In the case of issue of pure debt instruments by infrastructure companies, equity issued prior to the public issue of debt shall not be permitted to be listed unless the provisions of Rule 19(2)(b) of SCR Rules, 1957 are complied with, i.e., a public offer of equity has been made.
4. In the case of issue of debt instruments fully or partly convertible into equity by infrastructure companies, while the PCD/FCD shall be listed directly, the equity held prior to the public issue of the PCD/FCD shall be listed only at the time when the equity arising on conversion of the PCD/ FCD gets listed.
Please acknowledge receipt .
Yours faithfully,
O.P.GAHROTRA
SR. EXECUTIVE DIRECTOR
