19 July, 2017
Disclosure Requirements for Issuance and Listing of Green Debt Securities
The Securities and Exchange Board of India (‘SEBI ’) has, by way of circular dated May 30, 2017, set out certain requirements to be considered, along with the requirements set out in the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, for the issuance of and disclosures pertaining to ‘Green Debt Securities’.
A debt security will be considered as a ‘Green Debt Security’, if the funds raised through its issuance are to be utilized for the following project(s)/ asset(s): (a) renewable and sustainable energy; (b) clean transportation; (c) sustainable water management; (d) climate change adaptation; (e) energy efficiency; (f) sustainable waste management; (g) sustainable land use; and (h) biodiversity conservation.
The issuer of green debt securities is required to make certain disclosures in its offer / disclosure documents including inter alia : (a) a statement on the environmental objectives of the issuance; (b) details of the system / procedures to be employed for tracking the deployment of proceeds of the issue; and (c) details of the project and or assets where the issuer proposes to utilize the proceeds of the green debt securities.
Amendment to the SEBI (Foreign Portfolio Investors) Regulations, 2014
SEBI has amended the SEBI (Foreign Portfolio Investors) Regulations, 2014 (‘FPI Regulations’) with effect from May 29, 2017 to prohibit the issuance or transfer of an offshore derivative instrument (‘ODI’) to persons who are resident Indians or non resident Indians and to entities that are beneficially owned by resident Indians or non resident Indians.
Amendment to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
Pursuant to its notification dated May 31, 2017, the key amendments introduced to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (‘ICDR Regulations ’) are as follows:
i. The definition of Qualified Institutional Buyers (‘QIBs ’) has been amended to include systemically important and RBI registered non-banking financial companies, having a net-worth of more than . 500 crores (approx. US$ 77 million), as per the last audited financial statements.
ii. Regulation 16, which deals with monitoring agencies, has been amended to provide that:
a. if the issue size, excluding the size of offer for sale (‘OFS ’) by selling shareholders, exceeds . 100 crores (approx. US$ 15 million), the use of proceeds is to be monitored by a public financial institution / scheduled commercial bank identified as the banker of the issue in the offer document;
b. the monitoring agency will be required to submit quarterly reports to the issuer until utilization of at least 95% of the proceeds, excluding the proceeds under the OFS and amount raised for general corporate purposes; and
c. the issuer to publically disseminate such report on its website and to the stock exchanges within 45 days from the end of each quarter.
Participation of Category III Alternative Investment Funds in the Commodity Derivatives Market
SEBI has by way of its circular dated June 21, 2017, permitted Category III Alternative Investment Funds to participate in the commodities derivatives market subject to the following conditions:
i. to participate on the commodity derivatives exchanges as ‘clients’, subject to compliance of all SEBI rules, regulations, position limit norms issued by SEBI / stock exchanges etc., as applicable to clients;
ii. to not invest more than 10% of the investable funds in one underlying commodity;
iii. leveraging or borrowing subject to consent from the investors and maximum limit specified by SEBI (presently capped at 2 times the net asset value of the fund);
iv. disclosures to be made in the private placement memorandum of intent to invest in commodity derivatives, consent of existing investors to be taken and exit opportunities to be provided to the dissenting investors; and v. to comply with SEBI reporting requirements.
Some of the key proposals approved in the board meetings of the SEBI held on April 26, 2017 and June 21, 2017 are as follows:
i. Amendment to the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 to permit stock brokers / clearing members currently dealing in commodity derivatives to deal in other securities and vice versa , without setting up a separate entity;
ii. Relaxations from preferential issue requirements under the ICDR Regulations and from open offer obligations under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (‘SAST Regulations ’) which are currently available to lenders undertaking strategic debt restructuring of listed companies in distress, and be extended to new investors acquiring shares in such distressed companies pursuant to such restructuring schemes. Such relaxations, however, will be subject to shareholder approval by way of a special resolution and lock-in of shares for a minimum period of 3 years. The relaxations will also be extended to lenders under other restructuring schemes undertaken in accordance with the guidelines of the RBI ;
iii. Exemption from open offer obligations under the SAST Regulations, for acquisitions pursuant to resolution plans approved by the NCLT under the IBC ;
iv. Extension of relaxations in relation to the lock-in provisions currently available to Category I AIF s in case of an initial public offering to Category II AIF s as well;
v. Proposal for initiation of a public consultation process to make amendments to the FPI Regulations: (a) expansion of the eligible jurisdictions for the grant of FPI registrations to Category I FPI s by including countries having diplomatic tie-ups
with India; (b) simplification of broad based requirements; (c) rationalization of fit and proper criteria; and (d) permitting FPI s operating under the multiple investment managers structure and holding FVCI registration to appoint multiple custodians; and
vi. Levy of a regulatory fee of US$ 1,000 on each ODI subscriber, once every 3 years, starting from April 1, 2017 and to prohibit ODI s from being issued against derivatives except those which are used for hedging purposes.
Recording of Non Disposal Undertaking in the Depository System
In order to enable the recording of non-disposal undertakings (‘NDU ’) in the depository system, SEBI has, by way of circular dated June 14, 2017, permitted depositories to offer a system for capturing and recording NDU s subject to prescribed conditions. The provisions of the circular are required to be implemented by the depositories within four months.
Pursuant to the circular, on the creation of the freeze for recording the NDU , the depository will not effect any transfer, pledge, hypothecation, lending, rematerialisation or alienation in any form or any dealing of the encumbered securities till instructions are received from both parties for the cancellation of the NDU . The depository participants are prohibited from facilitating or being parties to any NDU created outside the depository system.
Review of OFS of Shares through Stock Exchange Mechanism
SEBI has modified the guidelines pertaining to OFS of shares through stock exchange mechanism by way of its circular dated June 27, 2017. The rationale for such revisions was to encourage greater participation by employees. The key modifications are as follows:
i. Promoters of eligible companies are permitted to sell the shares within 2 weeks from the OFS transaction to the employees, and such an offer would be considered to be a part of the OFS transaction.
ii. Promoters have the discretion to offer the shares at the price discovered in the OFS transaction, or at a price which is at a discount to such discovered price.
Promoters are required to make necessary disclosures in the OFS notice disseminated to the stock exchanges, and such disclosure would be required to contain details of the number of shares offered to employees and the discount offered, if any.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
