Debt capital markets in India: regulatory overview

A Q&A guide to debt capital markets law in India.

The Q&A gives an overview of legislative restrictions on selling debt securities, market activity and deals, structuring a debt securities issue, main debt capital markets/exchanges, listing debt securities, continuing obligations, advisers and documents, debt prospectus/main offering document, timetables, tax, clearing and settlement, and reform.

To compare answers across multiple jurisdictions visit the Debt Capital Markets Country Q&A tool

This Q&A is part of the global guide to debt capital markets law. For a full list of jurisdictional Q&As visit www.practicallaw.com/capitalmarketsdebt-guide.

Contents

Legislative restrictions on selling debt securities

1. What are the main restrictions on offering and selling debt securities in your jurisdiction?

This article is limited to discussing the legal framework for the issuance of non-convertible debentures (NCDs) issued by Indian companies.

Main restrictions on offering and selling debt securities

The following restrictions and requirements are placed on a private issue NCDs:

  • NCDs cannot carry any voting rights.

  • NCDs which qualify as "deposits" under the Companies (Acceptance of Deposits) Rules, 2014 (Deposits Rules) attract additional compliance requirements under the Deposits Rules.

  • NCDs cannot be issued for a maturity of less than three months from the date of issue.

  • For NCDs issued on a private placement basis:

    • except for some specific exceptions, an offer or invitation to subscribe cannot be made to more than 200 persons in a financial year;

    • a fresh offer or invitation cannot be made unless the allotments in respect of each earlier offer or invitation are withdrawn or abandoned.

The following restrictions and requirements are placed on a public issue NCDs:

  • A prospectus cannot be issued, or an offer/invitation to offer cannot be made, to the public or the company's members where the number of subscribers to the NCDs exceeds 500, unless one or more debenture trustees have been duly appointed.

  • NCDs must be credit rated.

  • NCD proceeds cannot be used for providing loans to, or for the acquisition of, shares of any group or associate company.

  • Any corporate or product advertisement issued before filing of the draft offer document must not make any reference to the issue.

  • Any publicity material after filing of the draft offer document must:

    • contain only factual information as disclosed in the draft offer document and must not disclose any information which is not contained in the draft offer document;

    • urge every potential investor to invest only on the basis of information contained in the final offer document; and

    • highlight that the draft offer document does not constitute an offer or invitation to purchase, or subscribe to, NCDs.

  • Corporate and/or product related publicity material issued during the subscription period (that is, from the issue opening date until the issue closing date) must not:

    • provide any reference to the issue; or

    • be used for solicitation purposes.

Restrictions for offers to the public or professional investors

The investors to a public issue of NCDs can be broadly categorised as follows:

  • Institutional investors.

  • Non-institutional investors.

  • Retail bidders.

There are no requirements specified in relation to any minimum subscription for each category of investor. However, each investor must remain compliant with any investment limits applicable to it.

For foreign investors, only entities registered with the Securities and Exchange Board of India (SEBI) as foreign portfolio investors (FPIs) are permitted to subscribe to NCDs. FPIs can only invest in NCDs with a minimum residual maturity of three years.

If FPIs are investing in any primary issue of NCDs which are proposed to be listed on a stock exchange, then the listing of those NCDs must be completed within 15 days of that investment on the relevant stock exchange. In the event that the NCDs issued are not listed within 15 days, for any reason, the FPIs can immediately dispose of these NCDs to a third party or the issuer.

FPIs are not permitted to invest in NCDs which have an options clause attached to them, where that options clause can be exercised within three years from the date of the investment in the NCDs by an FPI.

 

Market activity and deals

2. Outline the main market activity and deals in your jurisdiction in the past year.

The most common form of bond issuances on the Indian market is the issuance of non-convertible debentures (NCDs), and there were numerous NCD issuances carried out in 2015. Based on publicly available information, the total issuance size (2,975 issues) of privately-placed corporate bonds (that were listed on either the National Stock Exchange or the Bombay Stock Exchange, or both) for the year 2015-16 was INR458073.48 crore. According to the initial post-issue report issued by the Securities and Exchange Board of India, the total public issue size of NCDs for the year 2015-16 was INR33,811.92 crore.

Foreign investors with FPI registration have extensively used the NCD route to make investments into India as a result of the flexibility offered by these instruments.

 

Structuring a debt securities issue

3. Are different structures used for debt securities issues to the public (retail issues) and issues to professional investors (wholesale issues)?

Non-convertible debentures (NCDs) can be issued on a private placement basis or through a public issue:

  • Private placement. This is an offer or invitation to subscribe to the NCDs (up to a maximum of 200 persons can subscribe in a financial year).

  • Public issue. This is an offer or invitation by an issuer to the public to subscribe to the debt securities which does not constitute a private placement.

There are no different structures applicable in relation to the issuance of debt securities either through a private placement or a public issue. However, the documentation and compliance requirements differ in respect to each type of issuance. The obligations of the issuer company in relation to the NCDs can be secured or unsecured.

 
4. Are trust structures used for issues of debt securities in your jurisdiction? If not, what are the main ways of structuring issues of debt securities in the debt capital markets/exchanges?

Trust structures are widely used (and in most instances are statutorily mandated) for the issuance of non-convertible debentures (NCDs). Under a trust structure, a licensed "debenture trustee" is appointed to act as a trustee, for the benefit of debenture holders, in respect of NCDs and the security to be created for the NCDs.

A trust deed must be executed by the company in favour of the debenture trustee within three months of the issuance of NCDs.

An entity appointed as a debenture trustee is entitled to various rights, and is subject to certain obligations, under the applicable laws and the NCD documentation. In particular, a trust deed cannot contain a clause which has the effect of:

  • Limiting or extinguishing the obligations and liabilities of the debenture trustees or the issuer in relation to any of the investors' rights or interests.

  • Limiting, restricting or waiving the provisions of the applicable laws.

  • Indemnifying the debenture trustees or the issuer for loss or damage caused by an act of negligence on the part of either party.

 

Main debt capital markets/exchanges

5. What are the main debt securities markets/exchanges in your jurisdiction (including any exchange-regulated market or multi-lateral trading facility (MTF))?

Main debt markets/exchanges

In accordance with the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (Debt Listing Regulations), an issuer can list its debt securities on a recognised stock exchange. There are two recognised stock exchanges in India, which have nationwide trading terminals:

  • National Stock Exchange of India Limited (NSE) (www.nseindia.com).

  • Bombay Stock Exchange Limited (BSE) (www.bseindia.com).

Primarily listing and trading of debt securities in India takes place on both the NSE and the BSE.

Approximate total issuance on each market

Based on publicly available information, from 1 April 2015 to 29 February 2016, there were a total of 76 public issues (both equity and debt segment) which raised INR36,652 crore, out of which there were 17 public debt issues which raised INR23,073 crore. The cumulative amount mobilised through the private placement of corporate debt during 1 April 2015 to 29 February 2016, stood at INR4,14,623 crore.

From 1 April 2015 to 31 March 2016, the total issuance size of privately placed debentures that were listed was as follows:

  • Listed only on the NSE: INR206,676.33 crore.

  • Listed only on the BSE: INR152,281.15 crore.

  • Listed on both the NSE and the BSE: INR99,116 crore.

 
6. What legislation applies to the debt securities markets/exchanges in your jurisdiction? Who are the main regulators of the debt capital markets?

Regulatory bodies

The following are the main regulatory bodies for the debt capital markets:

  • Ministry of Corporate Affairs.

  • Reserve Bank of India (RBI).

  • The Securities and Exchange Board of India (SEBI).

  • The stock exchange where the non-convertible debentures (NCDs) are listed (that is, either the National Stock Exchange of India Limited (NSE), or the Bombay Stock Exchange Limited (BSE), or both.

Legislative framework

The principal statutes, rules and regulations that govern the issuance and listing of NCDs include:

  • Companies Act, 2013 (Companies Act) and the rules under that Act, including the Companies (Prospectus and Allotment of Securities) Rules, 2014 (Allotment Rules) and the Companies (Share Capital and Debentures) Rules, 2014.

  • Debt Listing Regulations.

  • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2016.

  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Disclosure Regulations).

  • SEBI (Debenture Trustees) Regulations, 1993.

  • SEBI (FPI) Regulations, 2014.

  • Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (FEMA 20).

  • Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010 issued by the Reserve Bank of India (RBI).

  • Non-banking financial companies (NBFCs) NCD Directions (for NCDs issued by NBFCs on a private placement basis).

  • Deposits Rules.

  • Uniform Listing Agreement entered into with the stock exchange(s) where the NCDs are proposed to be listed.

  • Any agreement for dematerialisation of securities entered into with the depository.

  • Any compliance and disclosure requirements of a continuing nature prescribed by the relevant stock exchange.

  • Circulars and notifications issued from time to time by the SEBI and the RBI.

 

Listing debt securities

7. What are the main listing requirements for bonds and notes issued under programmes?

Main requirements

Any issuer seeking to list non-convertible debentures (NCDs) (whether through a public issue or a private placement) must comply with the requirements specified in the Debt Listing Regulations and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Disclosure Regulations). Further, any listed entity which has listed securities must also make the necessary disclosures, and conform with its obligations, under the Disclosure Regulations on a continuous basis.

The issuing company must submit an application with the stock exchange on which the NCDs will be listed seeking its approval to list the NCDs along with, among other things, the following documents:

  • Copy of the board resolution of the issuing company approving the issue of the NCDs.

  • Copy of the constitutional documents of the issuing company.

  • A draft information memorandum.

  • Any other documents as may be prescribed by the relevant stock exchange.

Upon submission of the application, the stock exchange issues an "in principle" approval to list the NCDs. It can take from a couple of days to a couple of weeks for the stock exchange to issue the "in principle" approval. After the "in principle" approval is issued, the final information memorandum is uploaded on the website of the relevant stock exchange once the NCDs are issued.

Although a public issue of NCDs must be listed, in a private placement of NCDs listing is optional. In the case of a listing of privately-placed NCDs, the requirements and the procedure under the Debt Listing Regulations must be followed, which includes, among other things:

  • A credit rating must be obtained for the NCDs from at least one credit rating agency registered with the Securities and Exchange Board of India (SEBI).

  • The NCDs must be in dematerialised form.

  • The disclosures provided for in Regulation 21 of the Debt Listing Regulations must be made and uploaded (in PDF or HTML format) onto the websites of the stock exchange(s) where the NCDs will be listed. Some of the main disclosure requirements are as follows:

    • copy of latest audited balance sheet and annual report;

    • details of the debt securities issued and sought to be listed, including face value, nature of debt securities, mode of issue (that is, public issue or private placement);

    • issue size and details on the proposed use of the issue proceeds, redemption amount, period of maturity, and yield on redemption;

    • the debt-equity ratio prior to, and after, issue of the debt security, together with the consent from the prior creditor for a second or pari passu charge to be created in favour of the debenture trustee;

    • the rationale for the credit rating adopted by the credit rating agency must be disclosed;

    • a summary term sheet must be provided which must include brief information relating to the NCDs.

To list a public issue, the issuer must provide a detailed prospectus, the NCDs must be in dematerialised form, and a merchant banker must also be appointed. Not more than 25% of the issue can be earmarked for general corporate purposes. Non-banking financial companies (NBFCs) must follow a higher standard of disclosure on their lending policy, and the classification of loans and advances.

A draft offer document must be filed with the relevant stock exchange by the lead merchant banker, where it is made publicly available electronically for a period of seven days and is open for comments. The draft offer document must also be made available on the issuer's and merchant banker's websites.

All comments received on the draft offer document must be adequately addressed, and the amended draft offer document must then be filed with the jurisdictional Registrar of Companies (RoC). Copies of the draft and the final offer documents are also submitted to the Securities and Exchange Board of India (SEBI) simultaneously with the submission to the stock exchange. A due diligence certificate must be filed with the SEBI by the lead merchant banker before the filing of the final offer document, and by the debenture trustee before the opening of the issue. The issuer must advertise the public issue in at least one national daily newspaper with a wide circulation, on or before the opening date of the issue.

If the issuer does not receive the minimum subscription (at least 75% of the base issue size), then the entire application money must be refunded within 12 days from the date the issue closes.

The issuer must provide an undertaking in the offer document that the assets on which the charge is created are free from any encumbrances. If the assets are already charged to secure a debt, the permission/consent from the earlier creditor to create a second or pari pasu charge on the issuer's assets must have been obtained. The issue proceeds must be maintained in an escrow account until the documents for the creation of the security have been executed.

The issuer seeking the listing must apply for the "in principle" approval of the relevant stock exchange to list and trade the NCDs, and must enter into a listing agreement to admit the debt securities for dealing on the relevant stock exchange.

In addition to complying with the conditions prescribed by the relevant stock exchange where the debt securities are listed, the issuer must also comply with Rule 19(2)(a) of the Securities Contracts (Regulation) Rules, 1957.

Minimum size requirements

For a public issue of debt securities, the base issue size must be a minimum of INR1 billion. For a private placement issue, the minimum face value of the NCDs must be INR5 lakh.

Trading record and accounts

The issuer must have a good trading record, and neither the issuer nor its promoters or directors can be prohibited from accessing the capital markets under any order or direction passed by the SEBI. The issuer must submit its audited accounts for the last three financial years with the relevant stock exchange. Additionally, the issuer must comply with the eligibility requirements of the relevant stock exchange.

Minimum denomination

In case of a private placement, the minimum denomination is INR1 lakh. However, there is no minimum denomination for a public issue.

 
8. Are there different/additional listing requirements for other types of securities?

The listing of certain securities, including convertible bonds, warrants and convertible debt instruments must be in compliance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2016 (ICDR Regulations).

The listing requirements for a public issue of convertible debt instruments are broadly similar to the listing requirements for a public issue of non-convertible debentures.

However, there are certain key requirements that differ for a public issuance of convertible debt instruments, which are as follows:

  • The issuer making a public issue or a rights issue of convertible debt instruments must not either:

    • be on the list of "willful defaulters" published by the Reserve Bank of India; or

    • be in default of the payment of interest, or the repayment of the principal amount, in respect of debt instruments issued by it at an earlier date to the public (if any) for a period of more than six months.

  • The issuer must comply with Rule 19(2)(b) of the Securities Contracts (Regulations) Rules, 1957 and ensure a minimum offer and allotment to the public of at least 25% of convertible debentures.

  • In the case of an initial public offer of convertible debt instruments without a prior public issue of equity shares, the promoters must bring in a contribution of at least 20% of the project cost in the form of equity shares, subject to contributing at least 20% of the issue size from their own funds in the form of equity shares.

  • The Debt Listing Regulations only provides for the filing of offer documents with the Securities and Exchange Board of India (SEBI) for information purposes. However, in the case of a public issue of convertible debt instruments, the issuer must file a draft offer document for SEBI to review and comment upon. Once the SEBI's comments have been incorporated into the draft offer document, the issuer must file a final offer document with the relevant stock exchange, the Registrar of Companies and the SEBI.

  • Additionally, there are certain restrictions provided for warrants issued along with convertible debt securities:

    • the tenure of such warrants must not exceed 12 months from the date of their allotment to the public or rights issue; and

    • only one warrant must be attached to one specified security.

A foreign company can only raise funds in India through the issue of Indian depository receipts (IDRs). The issuance of IDRs must comply with the Companies (Registration of Foreign Companies) Rules, 2014 and the ICDR Regulations.

 

Continuing obligations: debt securities

9. What are the main areas of continuing obligations applicable to companies with listed debt securities and the legislation that applies?

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 contain the obligations of a listed entity which has listed non-convertible debentures (NCDs) on a recognised stock exchange.

Periodic financial reporting

The listed company must prepare and submit unaudited or audited financial results on a half-yearly basis in the format prescribed by the Securities and Exchange Board of India (SEBI) within 45 days from the end of the half year to the relevant stock exchange. The audited financial results for the year must be submitted to the relevant stock exchange in the same format as is applicable for the half-yearly financial results.

The annual audited financial results must be submitted along with the annual audit report and either:

  • Form A for an audit report with an unmodified opinion.

  • Form B for an audit report with a modified opinion.

The listed company must disclose to the stock exchange quarterly, half-yearly, year-to-date and annual financial statements, as applicable, outlining the extent and nature of the security created and maintained with respect to its secured listed NCDs.

Disclosures of events or information

Every listed company must disclose the occurrence of a "material event" to the relevant stock exchange. The following events are deemed to constitute a "material event" and must be disclosed:

  • An acquisition.

  • A scheme of arrangement.

  • The issuance or forfeiture of securities.

  • A revision of the credit rating.

  • The outcome of a meeting of the board of directors.

  • Agreements which are not entered into in the ordinary course of business.

  • Any fraud or default by the promoters, key managerial personnel or by the listed company.

  • A change in directors or the key managerial personnel of the company.

A listed company must disclose on its website its policy for determining whether a material event has occurred. Material events of the listed company's subsidiaries must also be disclosed to the relevant stock exchange.

A listed entity must maintain at all times 100% asset cover sufficient to discharge the principal amount for the NCDs issued. However, this requirement is not applicable in the case of unsecured debt securities issued by regulated financial sector entities that are eligible to meet the capital requirements as specified by the respective regulators.

Each credit rating obtained by a listed entity with respect to NCDs must be reviewed at least once a year by a credit rating agency registered with the SEBI.

A listed entity must promptly inform the relevant stock exchange of any information which has a bearing on the performance or operation of the listed entity, price sensitive information or any action that could affect the payment of interest or dividends of non-convertible preference shares, or the redemption of NCDs or redeemable preference shares.

 
10. Do the continuing obligations apply to foreign companies with listed debt securities?

Foreign companies can access the Indian securities market to raise funds through the issuance of Indian depository receipts (IDRs). The continuing obligations applicable to these foreign companies are provided in a separate chapter of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Chapter VII deals with the obligations of a listed entity which has listed its IDRs).

 
11. What are the penalties for breaching the continuing obligations?

Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed company, or any person connected to that company, that is in breach of the continuing obligations will be liable for an action under the securities laws. In addition, the company (or breaching person(s)) can be subject to the following actions by the relevant stock exchange (in the manner specified in the circulars and guidelines issued by the Securities and Exchange Board of India (SEBI)):

  • Imposition of fines.

  • Suspension of trading.

  • Freezing of promoter/promoter group holding of designated securities, as may be applicable, in co-ordination with depositories.

  • Any other action as may be specified by the SEBI.

The SEBI can also prescribe penalties, varying from INR1 million for every day of default and subject to a maximum amount of INR10 million, for any failure to furnish documents, returns, reports to SEBI or to maintain the books of accounts. The SEBI can prescribe a minimum penalty of INR1 million for any failure to file any return or furnish any information, books or other documents within the specified time period. The SEBI also has residual powers to issue directions (including disgorgement) to specified persons in the securities market where, after conducting an enquiry, the SEBI is satisfied that such directions are necessary for any of the following reasons:

  • In the interest of investors, or the orderly development of the securities market.

  • To ensure proper management of an intermediary.

  • To prevent the affairs of any intermediary being conducted in a manner detrimental to the interest of investors or the securities market.

In addition to the above, companies whose securities are listed must also comply with specific requirements prescribed under the Companies Act, 2013 (such as the periodic filing of annual returns and financial statements). The Companies Act, 2013 prescribes specific penalties for each act of non-compliance, along with criminal liability (in certain cases) for officers (of the issuer) deemed to be responsible for such non-compliance.

 

Advisers and documents: debt securities issue

12. Outline the role of advisers used and main documents produced when issuing and listing debt securities.

Private placement

It is not mandatory to appoint advisors or merchant bankers for non-convertible debenture (NCD) issuances on a private placement basis. However, issuer companies usually enter into contractual arrangements with financial institutions as arrangers for such issuances.

The documents involved can vary from issue to issue, but the basic documents involved are as follows:

  • Private placement offer letter. A company must make an offer to subscribe to its NCDs through the issue of a private placement offer letter on Form PAS-4, which is prescribed under the Companies Act, 2013. The offer letter provides brief particulars of the offer and information about the issuing company. The offer letter must be filed with the Registrar of Companies within 30 days of its circulation. If any security of the issuing company is listed on any recognised stock exchange, the issuing company must also file the offer letter with the Securities and Exchange Board of India (SEBI) within 30 days of circulation of the offer letter. The information memorandum and the offer letter can be combined in one document if the NCDs are proposed to be listed.

  • Information memorandum. This is similar to an offer document which the issuer provides to the investors prior to issuing listed NCDs. The Debt Listing Regulations require that the information memorandum must provide, among other things, basic details about the issue, the security available and a summary term sheet. The issuer must file the information memorandum with the stock exchange where the NCDs are proposed to be listed.

  • Debenture trustee agreement. This is a brief agreement between the company issuing the NCDs and the debenture trustee to appoint the debenture trustee as a trustee for the debenture holders. This agreement mainly sets out the terms of the debenture trustee's appointment. If a company is issuing secured NCDs, the debenture trustee agreement must be executed prior to the issue of the prospectus or offer letter for the subscription of NCDs.

  • Debenture trust deed. The SEBI (Debenture Trustees) Regulations, 1993 provide for the appointment of a debenture trustee, the settlement of a trust by the issuer and the mandatory contents to be included in a trust deed. Additionally, the Debenture Rules prescribe that a debenture trust deed must contain certain details as prescribed in Form SH-12. Further, the Companies Act, 2013 mandates that the debenture trust deed must be executed within three months of the date that the issue closed. The issuer company appoints the debenture trustee to hold the security for the benefit of the NCD holders and to act on behalf of the NCD holders. Any entity registered as a debenture trustee with the SEBI in accordance with the SEBI (Debenture Trustees) Regulations, 1993 can be appointed as a debenture trustee for the issue of NCDs. The debenture trust deed contains provisions on, amongst other things:

    • rights, powers, duties and obligations of the debenture trustee;

    • security to be created on the NCDs;

    • mortgage related provisions (if the NCDs are being issued under the registered mortgage deed to make use of the stamp duty exemption);

    • terms and conditions of the NCDs;

    • representations, warranties and covenants of the issuer;

    • financial covenants (if any);

    • events of default provisions.

Any NCD holder or shareholder of the issuer company has a right to obtain a copy of the debenture trust deed, and the issuer company is bound to provide the same upon request.

  • Security documents. Generally, separate security documents are executed by the issuer/security provider to create the security for the NCDs. The security documents are entered into between the security provider and the debenture trustee, who acts on behalf of the NCD holders.

  • Guarantee. In some cases, the issue of NCDs may be guaranteed by the parent company of the issuer or a group company. In such cases, a corporate guarantee is also executed by the guarantor in favour of the debenture trustee.

Public issue

A merchant banker must be appointed in relation to a public issue of NCDs. Merchant bankers are governed by the SEBI (Merchant Bankers) Regulations, 1992, which impose various regulatory duties and codes on merchant bankers, including the duty of independent verification as regards the adequacy of disclosures in offer documents.

Underwriters can also be appointed for such issues. Legal counsel assists in drafting the offer document and the disclosures contained in the offer document after conducting due diligence on the company.

The company's statutory auditor assists in the financial due diligence aspect of the offer document, including providing comfort letters for the issuer and its subsidiaries' key financial data. See Question 17, Public issue, for a list of the documents required for a public issue of NCDs.

 

Debt prospectus/main offering document

13. When is a prospectus (or other main offering document) required? What are the main publication/delivery requirements?

Private placements of non-convertible debentures (NCDs) can be carried out through the issue of a private placement offer letter (section 42, Companies Act, 2013 (Form PAS – 4 as prescribed under the Companies (Prospectus and Allotment of Securities) Rules, 2014)). The offer documents must be filed with the relevant stock exchange (in the case of listed NCDs) and with the Registrar of Companies (RoC) under the Companies Act, 2013.

For public issues, a draft offer document must be filed with the relevant stock exchange by the lead merchant banker. It is then made publicly available electronically for a period of seven days and is open for comments. Once the comments (if any) have been incorporated into the draft offer document, the issuer must file the final prospectus with the relevant stock exchange, the RoC and the Securities and Exchange Board of India.

 
14. Are there any exemptions from the requirements for publication/delivery of a prospectus (or other main offering document)?

There are no exemptions from the requirement to produce offer documents.

For private placements, issuers have been permitted to file shelf disclosure documents. In addition, certain companies (such as financial institutions and scheduled banks) can file a shelf prospectus for a public issue of non-convertible debentures (Regulation 6A, Debt Listing Regulations).

 
15. What are the main content/disclosure requirements for a prospectus (or other main offering document)? What main categories of information are included?

The main content and disclosure requirements are set out in section 26 of the Companies Act 2013, the Companies (Prospectus and Allotment of Securities) Rules, 2014, the Securities Contracts (Regulation) Rules, 1957 and the Debt Listing Regulations (see Question 7).

 
16. Who is responsible for the prospectus (or other main offering document) and/or who is liable for its contents?

The issuer is responsible for ensuring that the offer document contains true and fair disclosures (for both a public issue and a private placement). In addition, for a public issue the merchant banker is responsible for ensuring that the prospectus is correct.

The Companies Act, 2013 provides that civil liability arises for the following where there are misstatements in the prospectus:

  • Directors of the issuer.

  • Promoters of the issuer.

  • The authority that authorised the issue of the prospectus.

  • Any person who is named, or has authorised himself to be named, as a director, or as has agreed to become a director of the issuing company.

  • Any "expert", as defined under the Companies Act, 2013.

 

Timetable: debt securities issue

17. What is a typical timetable for issuing and listing debt securities?

Private placement

In a private placement, a typical issuance and listing of debt securities will involve the following steps:

  • The issuer company must obtain the necessary corporate authorisations which allow for the issue of the non-convertible debentures (NCDs).

  • The issuer company must obtain a credit rating from a prescribed credit rating agency (the credit rating letter issued must not be more than one month old on the date the issue opens), and appoint a debenture trustee for the issue of the NCDs.

  • The draft information memorandum (including the offer letter), debenture trust deed, debenture trustee agreement, security documents and guarantee deed must be drafted by the issuer company in the required format.

  • The issuer must enter into arrangements with the depository to obtain an ISIN number (international securities identification number) for dematerialised NCDs.

  • The issuer must enter into a tripartite arrangement with a registrar and transfer agent.

  • The draft information memorandum is submitted to the stock exchange for "in principle" listing approval.

  • Once the information memorandum is finalised, it must be uploaded onto the website of the relevant stock exchange.

  • Once the "in-principle" approval is obtained, the issuer will open the issue of the NCDs.

  • For issues on a private placement basis, the information memorandum must be distributed to a maximum of 200 investors during a financial year. The information memorandum must be serial numbered and addressed to the pre-identified investors.

  • The investors submit the application form to subscribe to the NCDs of the issuer company and pay the subscription amount to the issuer company.

  • Upon receipt of the subscription amounts and forms, the issuer company passes a board resolution authorising the allotment of the NCDs to the relevant investors.

  • The issuer company will give instructions to credit the accounts of the investors with the NCDs.

  • The issuer must obtain a final approval to list from the SEBI before listing the NCDs.

  • Once the issue is complete, an application along with the relevant disclosures must be made to the stock exchange to list the NCDs (the listing must be completed within 15 days from the date that the issue is completed.

  • Form PAS-4 must be filed with the Registrar of Companies (RoC) along with the information memorandum/offer letter (within 30 days from the date the information memorandum/offer letter is circulated).

  • The debenture trust deed is executed on or about the issue date when the NCDs are issued to the investors (the NCDs must be in dematerialised form, and the NCD holders' accounts are credited with the NCDs allotted to each investor).

  • The debenture trust deed must be registered with the applicable land registry if the debentures are issued under a registered mortgage-deed.

  • Any other security documents must also be executed at this stage.

  • Form CHG-9 must be filed by the issuer company with the RoC to perfect any security created by the issuer company. Where there are security providers other than the issuer company, such security providers must file a Form CHG-9 with the Registrar of Companies to perfect the security created by them.

  • The security documents are filed with the relevant stock exchange.

  • Form PAS-3 must be filed by the company with the RoC within 30 days from the date that the NCDs are allotted.

Public issue

Generally, a public issue of debt securities is more time consuming than a listing of privately-placed debt securities.

A public issue of debt securities is usually completed within three to six months from the date of the board resolution authorising the offering. The key steps involved in a public issue of debt securities include the following:

  • Corporate authorisations must be obtained in respect of the issuance.

  • The corporate governance requirements provided under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 must be complied with.

  • The issue agreement, depositary agreement, registrar agreement and agreement with the credit rating agency are executed.

  • Ratings are obtained from the credit rating agency.

  • Consents are obtained from lenders and third parties.

  • The draft prospectus is filed with:

    • the designated stock exchange for public comments;

    • SEBI for information purposes;

    • other recognised stock exchanges with a request that the same be uploaded for public comments.

  • The revised draft prospectus (in response to the public comments received) is submitted to the relevant stock exchange and the SEBI after seven days has passed from the date the draft prospectus was filed with the stock exchange for public comments.

  • "In-principle" approval is received from the relevant stock exchange.

  • The terms of the offering, the coupon and the redemption date are finalised.

  • The bankers to the offering are appointed.

  • The marketing presentations, FAQs, marketing strategy and so on are finalised.

  • The issuer's auditors prepare the necessary comfort letter in respect of the prospectus.

  • The escrow agreement is executed.

  • The board/committee of directors of the issuer company approve:

    • the final prospectus to be filed with the RoC;

    • the final terms and conditions of the securities (including coupon rate, tenure and/or premium);

    • the opening and closing dates for the offering.

  • The due diligence certificate is filed with the SEBI by the lead manager.

  • The prospectus is filed with the RoC, the relevant stock exchange and the SEBI.

  • An issue related advertisement must be published in a national daily newspaper with a wide circulation, on or before the launch of the offering.

  • Road shows commence.

  • The issue opens and is then closed.

  • The debenture trust deed is executed and the security is created.

  • The basis of allotment is prepared and the approval of the basis of allotment is obtained from the relevant stock exchange.

  • The Board approve the allotment.

  • The NCDs are listed on the relevant stock exchange.

 

Tax: debt securities issue

18. What are the main tax issues when issuing and listing debt securities?

There are no adverse tax consequences in relation to the issue or the listing of debt securities.

Withholding tax is applicable upon the payment of interest on debt securities issued to investors. In the case of resident investors, the rates under the Income Tax Act 1961 are applicable. In the case of non-resident investors, interest on securities remitted outside of India is subject to withholding tax either under the Income Tax Act or any applicable double tax treaty between India and the country of tax residence of the non-resident investor. The rate of withholding tax ranges from 5% to 10% under the Income Tax Act. However, there is no withholding tax for interest payable on any securities which are in dematerialised form and are listed on a recognised stock exchange in India.

 

Clearing and settlement of debt securities

19. How are debt securities cleared and settled and what currency are debt securities typically issued in? Are there special considerations for holding, clearing and settling debt securities issued in foreign currencies?

Non-convertible debentures (NCDs) issued and listed in India are generally issued in Indian rupees (INR). Debt securities can be issued by Indian entities designated in foreign currencies, which can be listed on offshore stock exchanges subject to certain specific requirements under the applicable Indian laws.

For dematerialised listed NCDs, clearing takes place through the depository, registrar, transfer agent and the relevant stock exchange. The Indian Clearing Corporation Limited has been promoted by the Bombay Stock Exchange to function as a clearing corporation for the corporate debt segment, including debentures.

All trades in corporate bonds available in dematerialised form which are reported on any of the following platforms (Fixed Income Money Market and Derivatives Association of India, National Stock Exchange – Wholesale Debt Market and the National Stock Exchange (NSE) website) will be eligible for settlement through the National Securities Clearing Corporation Ltd, a wholly-owned subsidiary of the NSE.

 

Reform

20. Are there any proposals for reform of debt capital markets/exchanges? Are these proposals likely to come into force and, if so, when?

The key reforms suggested in this year's budget for the corporate bond market development are as follows:

  • An electronic platform for private issuances.

  • A platform for corporate bond repurchase agreements (repo) and a consolidated reporting platform.

  • Extending foreign investment to unlisted debt securities and pass-through securities.

  • Encouraging bond financing by large borrowers.

 

Online resources

Ministry of Corporate Affairs

W www.mca.gov.in/

Description. The official website of the Government of India's Ministry of Corporate Affairs.

Securities and Exchange Board of India (SEBI)

W www.sebi.gov.in/

Description. The official website of the Securities and Exchange Board of India.

Reserve Bank of India

W https://www.rbi.org.in/

Description. The official website of the Reserve Bank of India, India's Central Bank.

National Stock Exchange (NSE)

W www.nseindia.com/

Description. The official website of the National Stock Exchange of India.

Bombay Stock Exchange (BSE)

W www.bseindia.com/

Description. The official website of the BSE (formerly known as the Bombay Stock Exchange).



Contributor profiles

Kannan Rahul, Partner

J. Sagar Associates

T +91 22 4311 8672
E kannan.rahul@jsalaw.com
W www.jsalaw.com

Professional qualifications. Lawyer, India

Areas of practice. Banking and finance; asset management and financial institutions; real estate.

Recent transactions

  • Handled financing transactions involving Indian and multinational banks, development financial institutions and corporates.
  • Extensive experience in structuring, due diligence, documentation and negotiation of various types of banking and finance transactions, including bilateral and syndicated credit facilities in the form of term loans, as well as working capital facilities, acquisition financing, guaranteed credit facilities to overseas subsidiaries of Indian entities, and trade finance transactions.
  • Advisory work on banking products, creation of security interest on Indian assets and issuances of debt securities.

Languages. English, Hindi, Malayalam

Soumitra Majumdar, Partner

J. Sagar Associates

T +91 22 4341 8535
E soumitra.majumdar@jsalaw.com
W www.jsalaw.com

Professional qualifications. Lawyer, India

Areas of practice. Banking and finance; asset management and financial institutions; construction and engineering; energy; real estate; communication (telecom and broadcasting); urban infrastructure.

Recent transactions Structuring, due diligence, documentation and negotiation, in relation to, and execution and closing of, the following:

  • Bilateral/syndicated credit facilities to Indian borrowers, for capital expenditure, working capital, project financing and acquisition financing (on secured/unsecured/limited recourse basis).
  • Guaranteed credit facilities to overseas subsidiaries of Indian entities, among other things, for the purpose of overseas acquisitions and leveraged buy-outs.
  • Cross border/domestic structured finance and trade finance transactions.
  • Advice on banking products.
  • Creation and perfection of security interest on Indian assets.
  • Debt and quasi-debt transactions compliant with Indian exchange control and banking regulations.
  • Issuance of non-convertible bonds (on a private placement basis).
  • Strategies on enforcement of security interest.
  • Corporate debt restructuring (statutory as well as contractual).

Languages. English, Hindi, Bengali

Narayan Kedia, Senior Associate

J. Sagar Associates

T +91 22 4341 8581
E Narayan.kedia@jsalaw.com
W www.jsalaw.com

Professional qualifications. Lawyer, India

Areas of practice. Capital markets and securities; mergers and acquisitions; private equity; corporate commercial; banking and finance.

Recent transactions Structuring, due diligence, documentation and negotiation, in relation to, and execution and closing of, the following:

  • Specialises in capital markets offerings, private equity placement, corporate commercial laws and setting up of funds.
  • Extensive experience in capital market related transactions including equity and debt offerings (both public and private), having been involved in a host of capital market offerings (initial public offerings, issuance of shares on a rights basis, issuance of foreign currency convertible bonds, issuances of American depository receipts and global depository receipts, issuances of bonds, and qualified institutional placements) for companies involved in aviation, manufacturing, infrastructure, banking and finance, pharma and real estate sectors, amongst others.
  • Experience in mergers and amalgamations, and private equity transactions across industry sectors. Advised clients on takeovers, buyback and other related matters.

Languages. English, Hindi

Vineet Bhansali, Associate

J. Sagar Associates

T +91 22 4341 8518
E vineet.bhansali@jsalaw.com
W www.jsalaw.com

Professional qualifications. Lawyer, India

Areas of practice. Banking and finance; corporate commercial; private equity; asset management and financial institutions; real estate; urban infrastructure.

Non-professional qualifications

  • BBA (Hons), National Law University, Jodhpur, India.
  • LLB (Business Law Hons), National Law University, Jodhpur, India.

Recent transactions Structuring, due diligence, documentation and negotiation, in relation to, and execution and closing of, the following:

  • Advised Indian and multinational banks, financial institutions and corporates in relation to: bilateral and syndicated lending (including external commercial borrowings); guaranteed credit facilities to overseas subsidiaries of Indian entities; rights issues and legality and requisite compliance in relation to general banking products.
  • Advised clients on exchange control laws, security creation and structuring transactions.
  • Experienced in due diligence, documentation and drafting of commercial agreements such as facility documents, security documents, investment agreements and so on.

Languages. English, Hindi

Sunil Jain, Partner

J. Sagar Associates

T +91 124 4390 783
E sunil.jain@jsalaw.com
W www.jsalaw.com

Professional qualifications. Lawyer, Accountant and Company Secretary, India

Areas of practice. Tax; customs & trade

Recent transactions

  • Advises on tax efficient structuring of strategic foreign investments; analysis of various India entry options; structuring of secondment of personnel from foreign parent to the Indian subsidiaries; mitigation of permanent establishment exposure and repatriation strategies in respect of royalties, fee for technical services, interest, dividend payments in terms of the relevant international tax treaties; and transfer pricing issues.
  • Advises on structuring of venture capital and private equity funds, investments by such funds, and carried interest.
  • Advises on setting-up of Indian sub-advisory offices, and the review of various fund structure documents to mitigate Indian tax exposure.
  • Advises on withholding tax and other implications in off-shore sale of stake in overseas holding companies involving the transfer of a controlling interest in Indian companies.
  • Advises on corporate transactions such as slump sale, de-merger, amalgamation, conversion of instruments, buy-back of shares and also restructuring of cross-border holding structures to streamline the structure for investment into India.

Languages. English, Hindi


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