Ease of doing business and development of corporate bond markets – revision in the framework for fund raising by issuance of debt securities by large corporates (LCs)
Summary
This circular revises the framework for fund raising by large corporates (LCs) through debt securities, effective from April 1, 2024. It mandates LCs to raise a minimum of 25% of their incremental borrowings via debt securities over a contiguous three-year block. The regulation introduces incentives for surplus compliance and disincentives for shortfalls, calculated by Stock Exchanges based on audited financial results. This section outlines the timelines for Stock Exchanges to share information regarding SGF contributions and mandates necessary bye-law amendments. It defines the responsibilities of the LPCC to ensure Listed Companies comply with incentive and dis-incentive provisions. Additionally, it provides transition rules for existing Listed Companies and details the calculation methods for incentives and dis-incentives in Annex I. This section provides a detailed numerical illustration of the framework for calculating borrowing shortfalls and surpluses across fiscal years 2025 to 2029. It defines specific rows for mandatory borrowing through debt securities, actual borrowings, and adjustments carried forward from previous years. The table further calculates incentives or dis
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This framework is applicable with effect from April 01, 2024 for LCs following April-March as their financial year. This framework is applicable with effect from January 01, 2024, for LCs which follow January-December as their financial year.
The framework shall be applicable for all listed entities... which have their specified securities or debt securities or non-convertible redeemable preference shares listed... and have outstanding long term borrowings of Rs.1000 crore or above... and have a credit rating of "AA”/“AA+”/AAA".
'Outstanding long term borrowings' for the purpose of this framework shall mean any outstanding borrowing with an original maturity of more than one year but shall exclude External Commercial Borrowings, Inter-Corporate Borrowings involving holding/subsidiary/associate companies, Grants/deposits received per Government guidelines, Borrowings arising on account of interest capitalization, and Borrowings for schemes of arrangement involving mergers, acquisitions and takeovers.
Have a credit rating of "AA”/“AA+”/AAA", where the credit rating relates to the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in.
An LC shall raise not less than 25% of its qualified borrowings by way of issuance of debt securities in the financial years subsequent to the financial year in which it is identified as an LC.
For the purpose of this framework, the expression "qualified borrowings" shall mean incremental borrowing between two balance sheet dates having original maturity of more than one year but shall exclude External Commercial Borrowings, Inter-Corporate Borrowings involving holding/subsidiary/associate companies, Grants/deposits received per Government guidelines, Borrowings arising on account of interest capitalization, and Borrowings for schemes of arrangement involving mergers, acquisitions and takeovers.
From FY 2025 onwards, the requirement of mandatory qualified borrowing by an LC in a FY shall be met over a contiguous block of three years. Accordingly... a listed entity shall be identified as an LC... and shall have to fulfil the requirement of qualified borrowing for FY "T", over FY "T", "T+1" and "T+2".
If at the end of three years i.e. last day of FY "T+2", there is a surplus in the requisite borrowings... Reduction in the annual listing fees... and Credit in the form of reduction in contribution to the Core Settlement Guarantee Fund (SGF) of LPCC...
If at the end of three years i.e. last day of FY "T+2", there is a shortfall in the requisite borrowings... a dis-incentive in the form of additional contribution to the core SGF shall apply...
The actual borrowing done through issuance of debt securities by a LC in FY “T”, shall first get adjusted with the deficit of the FY “T-2” if any, and further, against the deficit of FY “T-1” if any. The remaining amount shall get adjusted against the mandatory borrowings for FY “T”.
Pursuant to submission of financial results by listed entities... the Stock Exchanges shall... determine the list of LCs for the financial year. The Stock Exchanges shall co-ordinate and release a uniform list of LCs for the financial year and place the same on their websites.
Based on the financial results submitted by LCs, the Stock Exchanges shall, in co-ordination with each other, calculate the incentive or dis-incentive as on the last day of FY “T+2” for the block starting FY “T”. The Stock Exchanges shall intimate the same to the LCs...
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Source: SecMarx — Ease of doing business and development of corporate bond markets – revision in the framework for fund raising by issuance of debt securities by large corporates (LCs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.