SEBI has vide its amendment notification dt: August 23, 2023 amended provisions relating to SEBI LODR. SEBI has added a new chapter under SEBI LODR providing for delisting of non-convertible debt securities.
Objective of bring in Consultation Paper
SEBI had floated a consultation paper on 'Delisting of non-convertible debt securities' dt: May 12, 2023 proposing to bring a voluntary framework for delisting. Presently, the extant regulations, viz. SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 ('NCS Regulations') and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ('Listing Regulations') do not provide for delisting of non-convertible debt securities. In the absence of any specific provision for delisting of non-convertible debt securities in the extant provisions, a need has been expressed to specify a mechanism for delisting of non-convertible debt securities. The objective of this consultation paper is to seek comments/ views/ suggestions from the public on the proposal for a mechanism for delisting of non-convertible debt securities.
Why a need was felt for bringing voluntary delisting provisions?
SEBI received representations from industry stating that current framework does not provide for voluntary delisting. It further stated that a listed entity may choose to voluntarily delist non-convertible debt securities for various reasons. Some of the reasons could be:
- Nonconvertible debt securities may have very few holders and majorly with the intention of holding it to maturity. Thus, continuous listing may not provide them with any additional benefits. Thus, they may choose to delist such nonconvertible debt securities.
- The entity may intend to re-structure non-convertible debt securities due to financial distress or otherwise, and delist such re-structured non-convertible debt securities.
- Delisting may be contemplated consequent to a merger where one entity acquires and/ or merges with another entity. If the acquiring entity is also a listed entity, the non-convertible debt securities of the combined entity continue to be traded. If the acquiring entity is not listed, the combined/ merged entity may not desire listing of the non-convertible debt securities.
It is pertinent to note that since an issuer could have issued and listed different types of non-convertible debt securities, multiple ISINs may proliferate when compared to specified securities which usually have only one type of security listed. This requires being taken into consideration when determining whether to establish a mechanism for delisting of non-convertible debt securities, and if so, how it should operate given multiple ISINs. Hence a need was shown to provide for this. Accordingly, SEBI has now taken cognisance of same.
What does the amendment provide for?
With an aim to protect investors' interest, Sebi has notified a new framework prohibiting listed entities, with more than 200 non-QIB (qualified institutional buyer) holders of non-convertible debt securities, from delisting voluntarily. Under the new rule, the listed entity will have to obtain permission from all holders of non-convertible debt securities within 15 working days of receiving the notification of delisting. The present rule allows entities to delist by giving a prior intimation to the stock exchange about the meeting of the board of directors, where the proposal for a voluntary delisting is considered. Unlike equity, wherein approval by a threshold majority is sufficient for approval of delisting, in the new framework, approval of 100 per cent of the debt security holders has been mandated for delisting of debt securities.
Also, it would not apply to the delisting of non-convertible debt securities in certain situations such as delisting because of any penalty or action initiated against the listed entity by stock exchanges; delisting pursuant to the redemption of the non-convertible debt securities. Further, the mechanism would not apply to the delisting of a listed entity's non-convertible debt securities that have been delisted under a resolution plan authorised under the Insolvency Code
In case of delisting pursuant to a resolution plan as per the provisions of the Insolvency Code, the details of delisting of non-convertible debt securities will be disclosed to the stock exchanges within one working day of the approval of the resolution plan under the Insolvency Code.
The new rule prohibits a listed entity that has "more than 200 securities holders excluding qualified institutional buyers (QIBs) in any International Securities Identification Number relating to listed non-convertible debt securities or non-convertible redeemable preference shares".
Sebi said that all the events pertaining to the proposal of delisting in respect of non-convertible debt securities, starting from the placing of the agenda for delisting to the board of directors and till the delisting is completed, need to be disclosed as material information to the exchange. The listed entity will have to send the notice of delisting to the holders of non-convertible debt securities within three working days from the date of receipt of in-principle approval from the exchanges.
Sebi has further stated that the delisting proposal will be considered failed in case of non-receipt of in-principle approval from the stock exchange, such as non-receipt of no-objection certificate from the debenture trustee and non-receipt of approval from all the holders of non-convertible debt securities.
Conclusion
In case of failure of the delisting proposal, the listed entity will have to intimate the same to the exchange within one working day from the date of such event of failure. This new framework provides for voluntary delisting of NCDs and NCRPs. It also provides for timely disclosures of material information generated during this process. This would help investors be informed about various developments. Care must be taken with respect to implementation of the proposal of delisting from the context of insider trading regulations.
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