SEBI on October 19, 2023 has issued a revised framework for fund raising by issuance of debt securities by large corporates (LCs). The framework applies to all listed entities except for Scheduled Commercial Banks. To be subject to these regulations, a listed entity must meet specific criteria:
- Have their specified securities, debt securities, or non-convertible redeemable preference shares listed on recognized stock exchanges under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
- Maintain outstanding long-term borrowings of Rs. 1,000 crore or more. Outstanding long-term borrowings exclude external commercial borrowings, inter-corporate borrowings involving holding company and subsidiaries, government grants, interest capitalization, and borrowings related to mergers, acquisitions, and takeovers.
- Hold a credit rating of “AA,” “AA+,” or “AAA,” specifically for unsupported bank borrowings or plain vanilla bonds, without any structural support.
Identifying Large Corporates (LCs)
Once an entity fulfills the criteria, it is categorized as a “Large Corporate” (LC). LCs must adhere to the following key provisions:
Raising Debt Securities: LCs must raise a minimum of 25% of their “qualified borrowings” through the issuance of debt securities in subsequent financial years.
Contiguous Three-Year Block: Starting from FY 2025, LCs must meet the mandatory qualified borrowing requirement over a contiguous block of three years. For LCs following April-March financial years, this block starts from March 31, FY “T-1,” and for LCs with January-December financial years, it starts from December 31, FY “T-1.”
Incentives and Disincentives
Incentives and dis-incentives are applied based on an LC’s borrowing performance:
Surplus in Required Borrowings: If an LC exceeds the 25% borrowing requirement in the three-year block, it is entitled to incentives such as reduced annual listing fees and a credit in the form of a reduction in the contribution to the Core Settlement Guarantee Fund (SGF) of LPCC.
Shortfall in Required Borrowings: If an LC fails to meet the 25% borrowing requirement, it faces a dis-incentive in the form of an additional contribution to the core SGF.
Responsibilities of Stock Exchanges and LPCC
Stock Exchanges will play a crucial role in identifying LCs and calculating incentives or dis-incentives. They will notify LCs and facilitate the implementation of these provisions. LPCC will need to make necessary changes and ensure LCs comply with the requirements related to contribution to the core SGF.
Requirements for LCs Identified Based on Erstwhile Criteria
LCs that were identified based on previous criteria and meet the new criteria have the flexibility to comply with the 25% borrowing requirement over three years, starting from FY 2022.
