With a view to operationalise the Union Budget announcement for 2018-19, which, inter-alia, stated “SEBI will also consider mandating, beginning with large entities, to meet about one-fourth of their financing needs from the debt market”, SEBI has issued guidelines dated 26 November 2018 to all Listed Entities (whose specified securities or debt securities or NCRPS are listed on SEBI recognized Stock Exchanges).
A. Applicability of Framework
- For the entities following April-March as their financial year, the framework shall come into effect from April 01, 2019 and
- For the entities which follow calendar year as their financial year, the framework shall become applicable from January 01, 2020.
- The framework shall be applicable for all listed entities (except for Scheduled Commercial Banks) which :
- have their specified securities or debt securities or non-convertible redeemable preference share, listed on a recognised stock exchange(s) in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015; and
- have an outstanding long term borrowing with maturity more than a year of Rs 100 crores or above, excluding ECB and Inter corporate Borrowings between a parent and subsidiary(ies); and
- have a credit rating of “AA and above”.
B. Framework
A listed entity, fulfilling the criteria as specified above, shall be considered as a “Large Corporate” (LC) and such a LC shall raise not less than 25% of its incremental borrowings, during the financial year subsequent to the financial year in which it is identified as a LC, by way of issuance of debt securities, as defined under SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
Explanation: Incremental borrowings, shall mean any borrowing done during a particular financial year, of original maturity of more than 1 year, irrespective of whether such borrowing is for refinancing/repayment of existing debt or otherwise and shall exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiary(ies).
For an entity identified as a LC, the following requirement of meeting the incremental borrowing norms shall be applicable:
- For FY 2020 and 2021, on an annual basis.In case where a LC is unable to comply with the above requirement, it shall provide an explanation for such shortfall to the Stock Exchanges, in the manner as prescribed (refer disclosure formats below)
- From FY 2022 onwards – will need to be met over a contiguous block of two years.
Accordingly, a listed entity identified as a LC, as on last day of FY “T-1”, shall have to fulfil the requirement of incremental borrowing for FY “T”, over FY “T” and “T+1”. However, if at the end of two years i.e. last day of FY “T+1”, there is a shortfall in the requisite borrowing (i.e. the actual borrowing through debt securities is less than 25% of the incremental borrowings for FY “T”), a monetary penalty/fine of 0.2% of the shortfall in the borrowed amount shall be levied and the same shall be paid to the Stock Exchange(s).
C. Disclosure requirements for Large Entities
A listed entity, identified as a LC under this framework, must make the following disclosures to the stock exchanges, where its security(ies) are listed:
- Within 30 days from the beginning of the FY, disclose the fact that they are identified as a LC, in the format as provided at Annexure A.
- Within 45 days of the end of the FY, the details of the incremental borrowings done during the FY, in the formats as provided at Annexure B1 and B2.
- The disclosures must be certified both by the Company Secretary and the Chief Financial Officer, of the LC must also form part of audited annual financial results of the entity. Click to see the SEBI guideline.
