Securities and Exchange Board of India (SEBI) vide notification / Circular No. SEBI/HO/CFD/DIL/CIR/P/2021/614 issued and publishes dated 13th August 2021, has introduced “Guidelines on the issuance of non-convertible debt instruments along with warrants (‘NCDs with Warrants’) in terms of Chapter VI – Qualified Institutions Placement of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018” and exercise of powers conferred by Section 11(1) read with Section 11A of the Securities and Exchange Board of India Act, 1992 read with Regulations 299 and 300 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018
Crux / Summary:
SEBI has issued guidelines for non-convertible debentures with warrants products, whereby it made the electronic book platform (EBP) mandatory for the non-convertible debt instruments (NCD) portion of the issue. The move is aimed at streamlining the procedure of issuance and applicability of the EBP mechanism on the NCDs portion.
- The Circular was addressed to:
- All Recognized Stock Exchanges
- All Recognized Depositories
- Issuer Companies
- Merchant Bankers and Brokers registered with SEBI
- Need of the Circular:
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- To protect the interests of investors in securities and
- To promote the development of, and to regulate the securities market.
- Applicability of the provisions of this circular
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- This circular shall be applicable for all issues of ‘NCDs with Warrants’ made under ICDR Regulations, 2018, on or after the date of this Circular.
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- Entities involved in the ‘NCDs with Warrants’ issue process are advised to ensure compliance with this circular.
- Framework:
| Applicable Provisions / Regulations | Details in brief |
| Chapter VI of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, (‘ICDR Regulations, 2018’) | governs the issuance of ‘NCDs with Warrants’ (hereinafter ‘the issue’), through Qualified Institutions Placement (QIP). |
| Regulation 179 of ICDR Regulations, 2018 | 179 (3) In a qualified institution’s placement of non-convertible debt instruments along with warrants, an investor can subscribe to the combined offering of non-convertible debt instruments with warrants or to the individual securities, that is, either non-convertible debt instruments or warrants.” |
| ICDR Regulations, 2018 | permits the issue where NCDs and warrants offering can be attached to each other (stapled offer) or offered separately for a subscription (segregated offer). |
| SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 | governs issue and listing of non-convertible securities, on a recognized stock exchange and provides for Electronic Book Provider platform (EBP platform), offering efficient and transparent price discovery mechanism. |
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Effects of this circular:
Stakeholders were consulted through a SEBI consultation paper regarding ‘NCDs with Warrants’ as a product and on the applicability of the EBP platform mechanism on the ‘NCDs portion’ of the issue.
the following has been decided, in order to streamline the procedure of issuance and applicability of EBP platform mechanism on the ‘NCDs portion, and made applicable for issues wherein the size of NCDs portion is above threshold prescribed under SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, and Circulars issued thereunder:
- EBP platform mechanism shall be mandatory for the ‘NCDs portion’ of the issue (for both stapled and segregated offer) and the issuer shall be required to comply with the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, and Circulars issued thereunder.
- ‘Warrants portion’ of the issue shall be in terms of Chapter VI on Qualified Institutions Placement under ICDR Regulations, 2018.
- Of the ‘total issue size of the issue, at least 40% size shall consist of ‘Warrants portion’. It may be noted that ‘total issue size’ shall mean the combined size of NCDs issue and the aggregate size of the portion of the warrant, including the conversion price of warrants.
- The segregated offer of NCDs and stapled offer, both shall be exempted from the requirements as prescribed under the R.
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