SEBI Introduces Eased Norms for Large Corporates’ Borrowing from Debt Market
Introduction
The Securities and Exchange Board of India (SEBI) has recently made significant changes to the norms governing large corporates’ financing from the debt market. These new regulations aim to facilitate borrowing by listed entities with outstanding long-term loans of ₹1,000 crore or more, while also providing incentives for compliance.
Increased Threshold and Incentive for Compliance
Under the new framework, the previous limit of ₹100 crore for qualifying borrowings has been raised to ₹1,000 crore or above. This revision ensures that a wider range of large corporates can meet their financing needs through the debt market. Moreover, the framework introduces an incentive-based system where compliance is rewarded instead of imposing penalties.
Gradual Implementation and Issuance Requirements
Large corporates are now required to raise a minimum of 25% of their qualified borrowings by issuing debt securities. This requirement can be fulfilled over a period of three years, allowing flexibility for corporates to adjust their financing strategies accordingly.
Reduced Listing Fees and Disincentives
At the end of the three-year period, if a corporate’s actual borrowings through debt securities exceed 25% of their qualified borrowings for a specific financial year, they will receive a reduction in annual listing fees pertaining to debt securities and non-convertible redeemable preference shares, as well as a decrease in their contribution to the core settlement guarantee fund (SGF).
Conversely, if there is a shortfall in meeting the 25% threshold, the corporate will be subject to additional contributions to the core SGF. Currently, a monetary penalty is imposed, amounting to 0.2% of the shortfall in the borrowed amount.
Impact on the Bond Market and Ease of Doing Business
This move by SEBI is expected to deepen the bond market within Asia’s third-largest economy. The elimination of penalty provisions for non-compliance, along with incentives and concessions in listing fees, will contribute to fostering a more business-friendly environment. Makarand M Joshi, Founder of MMJC & Associates, emphasizes that SEBI’s decision will benefit listed entities who have struggled to raise incremental borrowing through the debt market.
Implementation and Approval
The new norms will be effective from April 1, 2024, for large corporates following an April-March financial year, and from January 1, 2024, for those following a January-December financial year. The proposals for this revised framework were approved by the SEBI board last month.
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