What we read in the minutes of the SEBI June board meeting

30 Jun 2023 , 07:08 AM

The board meeting SEBI concluded with some important decisions taken and some very far-reaching announcements being made by the regulator. Here is a quick reading of some of the major decisions and announcements made by SEBI in the June 2023 board meeting.

Reducing the time line for listing of public issues

The SEBI board has approved the proposal to reduce the time to listing of an IPO from T+6 to T+3. That means; now IPOs will have to get listed on the stock exchanges on the third working day from the closure of the public issue. However, for the same of simplicity this shift would be implemented in two phases. In the first phase of implementation, all public issues opening on or after September 01, 2023 will have the choice of opting for T+3 listing for IPO. That means it will be voluntary to begin with. However, for all IPOs opening on or after December 01, 2023, the T+3 listing will be mandatory. Needles to say, the entire process flow has been audited and the new time lines have been verified with merchant bankers, registrars, distributors, and depositories; who are involved in the IPO process.

The new system of T+3 for the IPO listing is seen as being in sync with the T+1 rolling settlement system now prevalent in the secondary markets. The new system will have several advantages. Allottees and non-allottees will get their shares in demand and refunds processed much faster. This allows them to churn their funds much quicker. Secondly, the company in question also gets access to the funds much faster which can be deployed for the said purposes like capex, loan repayment, working capital needs, inorganic expansion etc. Thirdly, this will also reduce the informal kerb trading in the securities as the time limit becomes a lot narrower in the new system. Overall, this shift is something that the present market infrastructure can easily handle and is likely to benefit all stake holders. That would mean; the finalization of basis of allotment, actual allotment approval, processing of refunds and the demat credits have to be completed by T+2 day so that the IPO can be listed on T+3.

Listing and delisting of non-convertible debt (NCDs)

This will apply to all outstanding NCDs that are unlisted as of the close of December 31, 2023 and the new rules will be applicable from January 01, 2024. From that date, all fresh issues of NCDs will have to be listed on the stock exchanges mandatorily. This is likely to facilitate transparency in the price discovery for NCDs. The listing will automatically better and wider disclosures about the solvency of the company to the investors. This would not be applicable for Section 54EC bonds and for bonds that are specifically exempted from such listing requirements. However, listing of any outstanding NCDs of a company as on December 31, 2023 can be listed voluntarily, although it will not be mandatory to list such NCDs. 

Just as listing of NCDs has been made mandatory, the SEBI has also given a window for delisting of such NCDs under certain special circumstances. However, it must be noted that this will be subject to 100% approval from the holders of debt instruments. Unlike equities, majority approval is not sufficient for NCD delisting, but 100% approval is required. However, as a special case, issuers having listed debt securities and where the number of debt security holders are less than 200; in such cases the entity will have the choice to delist the debt securities under the framework, after the requisite approvals.

Introduction of self-sponsored REITs / INVITs

The SEBI had mooted this point about the revision of minimum unit holding requirements for sponsors or REITs and INVITs in the past also. The REITs and INVITs are asset monetization vehicles. While REITs monetize a portfolio of commercial property assets, the INVITs monetize a portfolio of infrastructure assets like roads, power lines etc. In the case of REITs / INVITs, the sponsor effectively monetizes the assets by transferring them to the REIT / INVIT and then issues units against them to investors. Hence it is necessary for the interest of the sponsor to be aligned with the interest of the investor.

Currently, the SEBI regulations mandate that sponsors must hold at least 15% of the units for a period of minimum of 3 years from the date of listing of units. However, the monetization happens over 15 to 20 years and hence skin in the game was lacking. To overcome this challenge, SEBI has now mandated that the sponsor of the REIT / INVIT must hold a minimum number of units (on a diminishing scale) for the entire life of the REIT / INVIT. This will ensure greater alignment of interests of sponsors and unit holders. The mandatory minimum will have to be locked in an unencumbered.

SEBI has also mooted the idea of self-sponsored investment managers for REITs and INVITs. This will not only give an opportunity for seasoned and independent managers to play a key role but also to offer an exit route to the sponsors. To be eligible as self-sponsors of REITs / INVITs, such investment managers must meet the net worth criteria specified by the sponsor, complying with minimum unitholding requirement and existing sponsor giving up control of the INVIT / REIT. In addition, such RIETs/ INVITs must have been listed for 5 years.

In addition, to protect the interests of the minority unitholders, the amendments also stipulate that nomination rights be provided to unit holders having 10% or more of the outstanding units; either individually or collectively. Such unitholders can also nominate a director to the board of the INVIT / REIT.

Additional disclosure of information by Foreign Portfolio Investors

 In the last few years there have been several concerns like circumvention of rules by the FPIs, misuse of the FPI route etc. to overcome these challenges, the SEBI Board meeting has mandated as under.

• More granular level disclosures by FPIs holding more than 50% of their AUM in a single Indian corporate group or for FPIs having an exposure of more than Rs25,000 crore in the Indian markets.

   

• This would not be applicable to government related investors like sovereign wealth funds, multilateral agencies, central banks and also to certain pension funds and public retail funds. 

   

• If more than 25% of the corpus is with investors mentioned in the Sanctions List of the UN Security Council, such institutions would be ineligible for registration as FPIs. All requirements of identification of beneficial ownership (BO) in all such cases will be aligned with the extant PMLA regulations.

Apart from these four major changes, the SEBI Board meeting also tried to strengthen the grievance redressal system  by revamping the SCORES system and reducing timelines for response.