Sebi sets floor for NCD issue size at 75 per cent

If a public issue of debt securities such as Non Convertible Debentures (NCDs) fails to attain 75% subscription, the money that has been collected from the public will to be refunded within 12 days. If the issuer fails to refund the money within the stipulated time, it will have to pay an interest of 15% a year for the delayed period.

Tax-free bonds are exempted from the proposed norms.

At present, there are rules pertaining to allotment of shares of a company, wherein no allotment can be made of any share capital of a company offered to the public unless the minimum amount slated in the prospectus has been subscribed to. However, there were no such regulations for NCD issues.

The Securities and Exchange Board of India (SEBI) came out with a circular to this effect recently. The circular also specifies that the base size of the public issue of debt securities should be Rs 100 crore, and allows the issuer to retain the over-subscription money up to the maximum of 100% of the base issue size.

Also, to ensure that investors are well aware of where they are investing their money, Sebi has made it mandatory for companies launching public issues to provide granular disclosures of the "object of the issue" in the offer document. Since NBFCs are the most frequent users of the debt channel and most of them use the funds raised for onward lending, they are required to disclose details regarding the lending done by them, the lending policy, details of top 10 loans, borrowers, classification of these as well as the use of the proceeds from the previous issue.

"These norms are beneficial for investors and facilitate widespread participation," says Lakshmi Iyer, Head, Fixed Income & Products, Kotak AMC. The new norms will be applicable for the draft offer document for issuance of debt securities filed with stock exchanges on or after July 16.