denomination of debt securities

SEBI has vide its circular dated 28th October, 2022, reduced the denomination of debt securities and non convertible redeemable preference shares issued on private placement basis from Rs.10 lakh face value to Rs.1 lakh face value.

Operative part of SEBI circular follows:

Chapter V of the Operational Circular no. SEBI/HO/DDHS/P/CIR/2021/613 dated August 10, 2021, issued by SEBI, prescribes provisions pertaining to denomination of issuance and trading of Non-convertible Securities. The said circular, inter alia, mandates that the face value of each debt security or nonconvertible redeemable preference share issued on private placement basis shall be Rs. Ten lakh and the trading lot shall be equal to the face value.

SEBI has received representations from various market participants, including issuers, requesting for review of the said denominations. In particular, non-institutional investors consider the high ticket size as a deterrent which restricts their ability to access the market for corporate bonds. If the face value and trading lot is reduced, more investors can participate, which in turn will enhance the liquidity in the corporate bond market.

Accordingly, the following amendments are being made in Chapter V (Denomination of issuance and trading of Non-convertible Securities) of the Operational Circular:
Paragraph 1.1. shall be replaced with the following:
1.1. The face value of each debt security or non-convertible redeemable preference share issued on private placement basis shall be Rs. One lakh.
Paragraph 2.1. shall be replaced with the following:
2.1. The face value of the listed debt security and non-convertible redeemable preference share issued on private placement basis traded on a stock exchange or OTC basis shall be Rs. One lakh.

The provisions of this circular shall be applicable to all issues of debt securities and nonconvertible redeemable preference shares, on private placement basis, through new ISINs, on or after January 1, 2023.

You can view SEBI circular here

https://www.sebi.gov.in/legal/circulars/oct-2022/reduction-in-denomination-for-debt-securities-and-non-convertible-redeemable-preference-shares_64429.html

no offer to neighbors

MCA has vide its notification dated 5th May, 2022 amended the Companies (Prospectus and Allotment of Securities), Rules, 2014 wherein it has prohibited any offer or invitation of securities to any body incorporate incorporated in a country which shares the land borders with India or to a national of any such country unless such body corporate or individual has obtained previous Central Government approval in this regard. The approval should have been obtained under the Foreign Exchange (Nob-debt Instruments) Rules 2019 and should be attached to the private placement offer cum application letter.

The copy of the notification can be found at the MCA site.

relief to QIBs in private placement

The Ministry of Corporate Affairs, India has vide its notification dated 16th October, 2020 amended the Companies (Prospectus and Allotment of Securities) Rules, 2014 by allowing the special resolution for allotment of shares to Qualified Institutional Buyers once a year, instead of every time it is issued to the QIBs.

A proviso has been to the Rule 14(1) which says as follows

Hitherto, the special resolution was required to be passed for each offer or invitation to the QIBs.

Private placement/ preferential allotment to foreign shareholders

In respect of private placement/ preferential allotment of shares under section 42 of CA 2013, the allotment has to be done within 60 days of the receipt of application money, whereas FEMA gives 180 days time for allotment of shares in case of receipt of inward remittance from foreign shareholders. This is apparently a dichotomy because normally in case of foreign inward remittances companies normally wait for one or more tranches and then allot the shares within 180 days of the first remittance received. Also how do we treat that companies act 2013 gives one time limit for allotment and FEMA regulations gives another time limit for allotment. 

Moreover where one remittance has been received before April 2013 and the second one after April, 2013, which law should be applied, the 1956 Act or the 2013 Act, because for private placement under section 42 requires previous approval of the shareholders by way of special resolution for each of the private offers. So in case do we have to treat each remittance as a separate offer then take separate special resolutions for each offer. 

Moreover, rights issue, ESOP issue and preferential allotment appears in Chapter IV relating to share capital and debentures whereas private placement under section 42 appears in Chapter III relating to Prospectus and Allotment. 

Moreover what is the form to be used for filing allotment under section 62 in respect of rights issue or preferential allotment. Form PAS 3 refers to allotment made under sections 39 and 42 only.