The Securities and Exchange Board of India (SEBI) has issued a Circular detailing an additional framework pertaining to the issue, listing and trading of Perpetual Non – Cumulative Preference Shares (PNCPS) and Innovative Perpetual Debt Instruments (IPDIs). This Circular was issued on 6th October 2020 and shall come into force from 12th October 2020.
The Circular explains that PNCPS and IPDIs are commonly called Additional Tier 1 (AT 1) instruments and they are non-equity regulatory instruments.
One of the unique features of these instruments is that they grant the issuer banks discretion in writing down the principal/ interest, skipping interest payments, making early recalls, etc. However, such discretion is granted in the absence of a corresponding right granted to an investor to avail legal recourse even if such actions of the issuer may result in a loss to the investor.
In the light of the nature of these instruments and the fact that the extent of such discretion may be beyond the comprehension of retail individual investors, SEBI has issued the additional framework.
This additional framework will cover the following aspects:
- the manner of issuance of AT 1 instruments – mandatorily to be issued on the Electronic Book Provider (EBP) platform,
- the permitted investors- only Qualified Institutional Buyers,
- the allotment size- min. of Rs. crore,
- trading lot size- min. of Rs.1 crore and
- other specified requirements, such as disclosures mentioned in Annex I and provisions of circulars specified in Annex II of the present Circular.
The issuer bank is also required to make disclosures as per Schedule I of SEBI (Issue and Listing of Non- Convertible Redeemable Preference Shares) Regulations, 2013 (NCRPS). It is also required to make specific disclosures pertaining to the following:
- in its Information/ Private Placement Memo it must make disclosures of all conditions based on which call option will be exercised for these instruments,
- The unique features of these instruments as stated above must be included in its risk factors
- Point of Non Viability (PONV) clause
