The NCS (Second Amendment) Regulations

The Securities Exchange Board of India (“SEBI”) has recently amended the SEBI (Issue and Listing of Non-Convertible Securities) Regulations,2021 (“NCS Regulations”) for the second time this year by introducing the SEBI (Issue and Listing of Non-Convertible Securities) (Second Amendment) Regulations, 2023 (“Second Amendment Regulations”). The SEBI (Issue and Listing of Non-Convertible Securities) (Amendment) Regulations, 2023 (“First Amendment Regulations”) have already been discussed by us in our earlier article[1]. The Second Amendment Regulations come into force on the date of publication i.e., July 3, 2023.

Pursuant to the Second Amendment Regulations, SEBI has introduced the following changes:

  1. Introduction of Chapter VA

The newly introduced Chapter VA refers to the disclosures to be made in the general information document (“GID”) in accordance with Schedule I of the Second Amendment Regulations. Schedule I provides a consolidated list of disclosures that have to be made in (i) a prospectus for public issue of non-convertible securities and (ii) in a private placement memorandum for private placement of non-convertible securities. The introduction of this uniform schedule of disclosures for both public and private issues of non-convertible securities replaces an erstwhile regime of there being two separate schedules, namely Schedule I (Disclosures for Public Issue of Debt Securities and Non-Convertible Redeemable Preference Shares) and Schedule II (Disclosures for Private Placement of Non-Convertible Securities).

  1. GID and KID

Under Chapter VA of the Second Amendment Regulations, the shelf placement memorandum will be phased out in due course and shall be replaced by the GID and key information document (“KID”), which would reduce the need for documentation by replacing the placement memoranda required to be filed for each issue during a year.

The GID would be valid for a period of one year from the date of opening of the first offer of non-convertible securities. If the issuer wants to issue securities for a second or subsequent time, during the validity of the GID, it would only be required to file a KID for each such second or subsequent offer of non-convertible securities, with the stock exchange instead of filing the GID. The KID would play a role similar to a tranche placement memorandum and would require to contain only material disclosures/deviations from the GID. The GID may indicate the size of the issue i.e., the amount of monies which the issuer proposes to raise during the period of validity of the GID.

The KID would contain the following details:

    1. details of the offer of non-convertible securities in respect of which the KID is being issued;
    2. financial information, if such information provided in the GID is more than six months old;
    3. material changes, if any, in the information provided in the GID;
    4. any material developments not disclosed in the GID, since the issue of the GID relevant to the offer of non-convertible securities in respect of which the key information document is being issued; and
    5. disclosures applicable in case of private placement of non-convertible securities as specified in schedule I, in case the second or subsequent offer is made during the validity of the shelf prospectus for which no general information document has been filed.
  1. Timeline for implementation

The provisions introduced by Chapter VA are applicable on a ‘comply or explain’ basis till March 31, 2024 and on a mandatory basis thereafter.

Under Chapter VA, ‘comply or explain’ means that the issuer shall endeavor to comply and achieve full compliance, by filing a GIC instead of a placement memorandum for private placement of non-convertible securities sought to be listed, until March 31, 2024. In case the entity is not able to achieve full compliance with the provisions, till such time, it shall explain the reasons for such non-compliance or partial compliance, and the steps initiated to achieve full compliance.

  1. Additional disclosures for private placement

Schedule I has introduced additional disclosures for private placement of non-convertible securities such as details of:

    1. Issue expenses including expenses paid towards lead manager fees, underwriting and brokerage commissions, fees payable to the registrar of issue and legal advisor, marketing expenses etc.
    2. The financial statements of the issuer for the last three years should be audited and certified by a statutory auditor who holds a valid certificate issued by the Peer Review Board of the ICAI.
    3. Accounting disclosures have been updated for financial and non-financial sector entities.
    4. Disclosures of (i) director’s remuneration, (ii) nature and extent of interest of directors in promotion of the company or any immovable property acquired by the issuer in the last 2 years and (iii) contribution by directors as a part of the offer or separately.
    5. Details of pending litigation involving the issuer, promoter, director, subsidiaries, group companies or any other person, whose outcome could have material adverse effect on the financial position of the issuer, which may affect the issue or the investor’s decision to invest / continue to invest in the debt securities and/ or non-convertible redeemable preference shares.
    6. Related party transactions entered during the preceding three financial years and current financial year with regard to loans made or, guarantees given or securities provided.

The Second Amendment Regulations now provide for detailed disclosures even for private placement of non-convertible securities which is now in line with a public issue. The enhanced disclosures in the nature of related party transactions, director remuneration and issue related expenses incurred would go a long way in ensuring that the prospective security holder makes a informed choice of subscribing to the same. Further, introducing the GID and KID would help in reducing the timelines, costs and paperwork associated with multiple issues during the same year.

Author: Manisha Paranjape


[1] Amendment to the NCS Regulations dated May 29, 2023

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