SEBI board met on 29th June 2021 (no 22/2021) and took various decisions on independent directors, Review and merger of SEBI (Issue and Listing of Debt Securities) Regulations 2008, and SEBI (Non-convertible redeemable preference shares) Regulations, 2013 into a single regulation – SEBI (Issue and listing of Non-Convertible Securities) Regulations 2021, etc. Since SEBI sets the tone of capital market and wealth formulation of the nation, let us learn the decisions taken in depth. Copy of their web site for ready reference is as under:
https://taxguru.in/sebi/sebi-board-meeting-29th-june-2021-11-things-know.html
The Board considered and approved the proposals relating to the review and merger of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013 into a single Regulation to be called— SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. Let us learn the major provisions of the Regulations, 2021.
I. The major provisions of the new Regulations are as under:
1. Issuers other than unlisted REITs and InvlTs who are in existence for less than 3 years, have been facilitated to tap the bond market, provided:
a. Issuance of their debt securities is made only on a private placement basis;
b. The issue is made on the EBP platform irrespective of the issue size; and;
c. The issue is open for subscription only to QIBs.
This will enable Special Purpose Vehicles created for specific infrastructure purposes/ NBFCs/ listed REITs/ listed InvlTs and other companies who propose to list debt securities purely on private placement basis but who do not have a three-year existence history, to list their debt securities issued on private placement basis, while, all other requirements under the proposed NCS Regulations and operating stipulations of the EBP mechanism shall continue to apply to such issuers.
2. Parameters for identification of risk factors have been introduced to assist issuers in disclosing pertinent risk factors on risks intrinsic to the issuer as well as the instrument.
3. The requirement to have a minimum rating of AA- for a public issuance of NCRPS has been done away.
4. The requirement of a minimum tenure of three years for a public issuance of NCRPS has been removed thus providing flexibility to the issuers to structure their issuance as per their resource requirement and raise funds through an issue of NCRPS.
5. To enable issuers to raise funds quickly without filing a separate prospectus each time, a single shelf prospectus has been done away with.
6. The option for call and put has been introduced in case of debt securities issued on private placement basis.
7. Issuers who have cured the default in payment of interest/dividend/redemption amount to raise funds through non-convertible securities, have been permitted to file shelf prospectus.
8. In order to encourage public issuances of debt securities, the present stipulation that the minimum size of Rs. 100 crores has been done away with.
9. The Electronic Book Provider (EBP) platform has been made mandatory for issuance of eligible securities on private placement basis proposed to be listed amounting to INR 100 crore or above in a financial year which will improve price discovery and transparency.
10. The provision of creation of charge on the assets and properties of the issuer has been harmonized with the Companies Act
11. The requirement of abridged prospectus has been streamlined to around 10 pages from over 50 pages, in order to enhance readability for the investor.
12. In case an issuer wishes to roll over the debt securities the provision of e-voting has been introduced in addition to postal ballot to facilitate issuers to seamlessly obtain voting for passing the resolution.
My observations
Let us be clear about the objective of SEBI as of competing with the best and easiest practices to encourage bond market, abolish single shelf prospectus which are rudiments of socialistic era when the government felt it did a favor for industrialist to float a company, provision of creation of charge on assets and the practice of e-voting which is in vogueunder Company’s law for quite some time. However, let us applaud SEBI for its actions to simplify the procedures for more investment related activities.
II. Introduction of Framework for Accredited Investors in securities market.
The concept of accredited investors has gained much importance due to easy mobility of funds from abroad to India, the fastest emerging market in the world and also one of the best nations to get maximum foreign investments in the world.
Let us understand and appreciate the faster merging of Indian rules with the best in the world to attract maximum investments.
A framework for ‘Accredited Investors’ in the Indian securities market, a class of investors who may be considered to be well informed or well advised about investment products has been approved by SEBI board.
The salient features of the proposed framework include:
- Eligibility criteria for Accredited Investors who may be Individuals, HUFs, Family Trusts, Sole Proprietorships, Partnership Firms, Trusts and Body Corporates based on financial parameters and information as may be specified by SEBI.
- Eligible subsidiaries of depositories and specified stock exchanges, and any other specified institutions to be recognized as Accreditation Agencies. Accreditation Agencies to grant accreditation status and issue Accreditation Certificate to Accredited Investor.
- Modalities of accreditation and procedure to avail benefits linked to accreditation
The benefits linked to accreditation include:
1. Accredited Investors shall have flexibility to participate in investment products with an investment amount lesser than the minimum amount mandated in the Alternative Investment Funds (AIF) Regulations and Portfolio Managers (PMS) Regulations.
2. AIF for Accredited Investors where each investor invests minimum investment amount of Rs. 70 Crores may avail relaxation from regulatory requirements such as portfolio diversification norms, conditions for launch of schemes and extension of tenure of the AIF.
3. Accredited Investors with minimum investment of Rs. 10 Crores with registered PMS provider, may avail relaxation from regulatory requirement with respect to investment in unlisted securities and can enter into bilaterally negotiated agreements with the PMS provider.
4. Accredited Investors who are clients of Investment Advisers will have the flexibility to determine the limits and modes of fees payable to the Investment
Adviser through bilaterally negotiated contractual terms.
Discussion on accredited investors
So far, as a nation we have always been guiding the investors as if the modern economy does not entitlethem to get enlightened by their own efforts. It has also taken nearly 74 years to recognize the concept of accredited investors who take a huge risk to invest under trying situations any- where in the world. However, I do join the others in welcoming SEBI efforts to give legal recognition to the word accredited investors and narrate the advantages of being so. Better late than never.
In the investing world, India is among others trying to acquire the precious investments that would lift India from among developing status to developed nation status and substantially raise the economic status of its citizens. Let us do recollect that SEBI has to keep in mind that all unicorns that emerge from India have to be retained in India and provided the best investment climate for their hardwork. I would request SEBI to give open invitation to any one who wants to invest here to do so and the best atmosphere will be provided to them.
They are doing a favor to our nation by their investments which as on date would lead them to prosperity due to positive vibe present in the country in all areas of development.
Though through my earlier article, I have stressed the likely changes in respect of independent director, the current board meeting of SEBI brought the following epoch- making changes which would restrict the top managements of all companies not to under utilize the efforts of independent directors whose efforts/results of their work are not at all reflected in the balance sheet or other statements associated with the same. Even all leading public/private banks do not seem to engage professionals like Chartered accountants/cost accountants/lawyers/Company secretary as independent director. The present efforts of SEBI are laudable since it would cleanse the system.
Let us glide through the changes approved in SEBI Board meeting.
1. “Appointment/Re-appointment and Removal of IDs
- Appointment/Re-appointment and Removal of IDs shall be through a special resolution of shareholders for all listed entities.
- The process to be followed by Nomination and Remuneration Committee (NRC), while selecting candidates for appointment as IDs, has been elaborated and made more transparent including enhanced disclosures regarding the skills required for appointment as an ID and how the proposed candidate fits into that skillset.
- The composition of NRC has been modified to include 2/3rd IDs instead of existing requirement of majority of IDs.
- Shareholder approval for appointment of all directors including IDs shall be taken at the next general meeting, or within three months of the appointment on the Board, whichever is earlier.”
Discussion on above changes
We are currently not aware of the role of independent directors, their qualifications and the number of instances where they could propose changes/veto the efforts of the top management which have led the companies to financial disasters. Examples of big public sector banks who are trying to bring huge absconding financial customers who have bled the banks and living abroad or the private sector banks who are involved in getting their former CEOs being charge sheeted by legal authorities from the central government are known to all of us. Leading news papers vouch safe for these news items. I sincerely request SEBI to strictly enforce its rulings and conduct periodical studies to know the realistic situations. The role of independent director needs periodical monitoring since they being indifferent to any vested interests, can express their expert opinions without fear or favor. This would lead to good governance and resultant prosperity to all stake holders of the company and more wealth creation.
Other changes proposed and accepted
2. Eligibility requirement/resignation of ID/Audit committee
- A cooling off period of three years has been introduced for Key Managerial Personnel (and their relatives) for appointment as an ID.
- Relatives of employees of the company, its holding, subsidiary or associate company have been permitted to become IDs, without the requirement of a cooling off period, in line with Companies Act, 2013.
- The entire resignation letter of an ID shall be disclosed along with a list of her/his present directorships and membership in board committees. Also, a cooling-off period of one year has been introduced for an ID transitioning to a whole-time director in the same company or other related companies.
- Audit Committee – At least 2/3rd of the members of the audit committee shall be independent directors and all related party transactions shall be approved by only Independent Directors on the Audit Committee.
- Directors and Officers insurance – The requirement of undertaking Directors and Officers insurance has been extended to the top 1000 companies (by market capitalization).
These amendments shall be made applicable with effect from Jan 01, 2022.
Discussion
I tried to enlist the achievements of independent directors in leading nationalized, leading private sector banks or big companies who claim to be too big to fail as per their market capitalization. Except Colgate Palmolive whose balance sheet expressed detailed working of Audit committee or the role of independent directors, none of the big companies in India take the role as per stipulations of Company law.
Being myself a qualified independent director (by written test by regulator) and appearing in the web site of MCA, so far, no company bothered to call me, interview me or send any communication. The same applies to all my qualified friends with exceptional talents. Many companies still struggle with mediocre independent directors.
Let us hope for the best in future.
SEBI Board resolutions did contain various matters as under which may be read by any one interested to learn more.
iv. Amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014
v. Amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014.
vi. The Board approved the proposal to amend the SEBI (Foreign Portfolio Investors) Regulations, 2019 to permit eligible Resident Indian Fund Managers (other than individuals) to be constituents of Foreign Portfolio Investors (FPls)
vii. Amendment to SEBI (Credit Rating Agencies) Regulations, 1999.
viii. Amendment to SEB’ (Bankers to an Issue) Regulations, 1994.
ix. Amendments to the Securities and Exchange Board of India
x. SEBI (Prohibition of Insider Trading) Regulations, 2015 under which the maximum amount of reward has been increased from Rupees One Crore, at present, to Rupees Ten Crore under informant mechanism.
Conclusion:
As observed by me at intermittent paras in above article, SEBI has put up many proposals to its Board and got them approved and circulated through its web site for faster growth of capital market. I join others in lauding SEBI for its timely action.
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