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Published on 26 April 2025

Step-by-Step Guide to Issuing Non-Convertible Debentures on Private Placement

Introduction

This blog outlines the step-by-step process for a listed company to issue Non-Convertible Debentures (NCD) on a private placement basis. We will delve into eligibility criteria, the necessary regulatory compliance, and provide a structured overview of the allotment procedures.

Governing Acts, Regulations, and Circulars

To ensure compliance, the following acts and regulations govern the issuance of NCDs:

  • Companies Act, 2013 & relevant Rules
  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
  • SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021
  • Operational Circular SEBI/HO/DDHS/P/CIR/2021/613
  • SEBI (Debenture Trustee) Regulations, 1993
  • Stamp Act, 1899

Eligibility Conditions

A. Eligibility Under the Companies Act, 2013:

  1. Offers can be made to a maximum of 200 persons.
  2. No subsequent offer can be made until previous allotments have been completed or withdrawn.
  3. Redemption period must not exceed 10 years from the issue date.
  4. Offers must be in DEMAT form.
  5. Compliance with FEMA is required for foreign residents or bodies corporate.

B. Eligibility Under SEBI (NCS) Regulations, 2021:

No issuer may issue non-convertible securities if:

  • The issuer or its affiliates are debarred from the securities market by the Board.
  • The issuer's promoters or directors are associated with a company that is similarly debarred.
  • The issuer or its affiliates are willful defaulters, fugitive economic offenders, or have pending penalties. Exceptions apply if the debarment period has ended or if the issue is a private placement of non-convertible securities.

Additional Requirements:

  • No public issue if payments are in default for over six months.

Requirements for NCD Issuance on Private Placement Basis

The following checklist outlines conditions and requirements for the issuance of NCDs:

  1. In-Principle Approval: Apply to one or more Stock Exchanges.
  2. Depositories: Establish arrangements for DEMAT (NSDL & CDSL).
  3. Debenture Trustee: Appoint and secure written consent; execute a trust deed within 60 days of allotment.
  4. Registrar to the Issue: Appoint a registered Registrar with connectivity to all depositories.
  5. Credit Rating: Obtain and disclose credit ratings from at least one agency.
  6. Recovery Expense Fund: Create as specified by the Board.
  7. Regulatory Fees: Pay fees specified under Schedule VI of SEBI (NCS) Regulations, 2021.
  8. Day Count Convention: Payments must be made on working days; utilize Actual/Actual method for calculations.
  9. Debenture Redemption Reserve/Capital Redemption Reserve: Create as required by the Companies Act, 2013 (not applicable for private placements).
  10. ISIN Application: Apply for and comply with ISIN conditions.
  11. Trust Deed: Execute a trust deed with the debenture trustee.
  12. Listing Agreement: Sign an agreement with the relevant stock exchange.
  13. Continuous Listing Conditions: Adhere to listing regulations.
  14. Obligations of Issuer: Ensure fair treatment of applicants, maintain security cover of 100% for issued securities.
  15. Obligations of Debenture Trustee: Protect interests, monitor security creation, and undertake relevant oversight.
  16. Listing Application: Submit to Stock Exchanges, detailing the integrated documents required.
  17. Private Placement Disclosures: Provide disclosures in both the placement memorandum and on Stock Exchange websites.
  18. Creation of Security: Option to create charges over various assets, with necessary disclosures.
  19. Consolidation and Re-Issuance Conditions: Subscribe to specific conditions stipulated in the issuer's articles.
  20. Allotment of Securities: Ensure compliance with borrowing limits as per Section 180(1)(c).

Procedure for Allotment of NCDs on Private Placement Basis

Governing Provisions and Steps

  1. Prior Intimation to Stock Exchange: Notify at least two working days before the board meeting regarding NCD proposal (Reg 29 of SEBI LODR).
  2. Board Meeting Approval: Authorize relevant committee for various roles including appointing RTA, obtaining credit ratings, and defining the terms of the NCDs.
  3. Outcome Disclosure: Communicate decisions within 30 minutes post-meeting (Reg 30 of SEBI LODR).
  4. File Resolution with ROC: Within 30 days, submit copies of resolutions using Form MGT-14.
  5. Shareholder Approval: Approve through Special Resolution; valid for one year.
  6. General Meeting Disclosure: Submit outcomes no later than 24 hours post-EOGM.
  7. Voting Results Submission: Provide within two working days after EOGM.
  8. File Special Resolution: Submit within 30 days to ROC (MGT-14).
  9. Finalization of Disclosure Documents: Include consent from trustees, details of asset security, and issuance plans.
  10. Open Separate Bank Account: For handling application proceeds.
  11. Credit Rating: Confirm ratings from at least one agency.
  12. Agreement with Depositories: Ensure plans are in place for DEMAT.
  13. Hold Board Meeting Post-Closing Offers: Approve necessary documents for issuance.
  14. Intimation of Allotment: Communicate allotments to Stock Exchange as per regulations.
  15. File Return of Allotment: Using form PAS-3 within 15 days.
  16. Create Charge Registration: File particulars within 30 days using CHG-9.
  17. Register Charge: Make necessary entries in the Register of Charges.
  18. Payment of Fees: Ensure all regulatory fees are settled on time.
  19. Listing Application Finalization: Prepare to submit complete applications for listing.

Fees Schedule & Required Documents

When applying for the listing of NCDs, the following documents and fees are essential:

Required Documents

  1. Listing Application.
  2. Final Placement Memorandum.
  3. Board Approval Copies.
  4. Credit Confirmation Letters.
  5. Executed Trust Deeds.
  6. Due Diligence Certificates.
  7. Additional confirmations as required per specific regulations.

Fees Overview

  • Initial Listing Fees: Rs. 20,000/-
  • Processing Fees: Varies by company type.
  • Annual Listing Fees: Determined by total issue size, starting from Rs. 2,750.

Conclusion

Issuing Non-Convertible Debentures on a private placement basis involves adhering to a comprehensive set of regulations and procedures outlined by various governing bodies. By following the steps and managing the required documentation meticulously, listed companies can successfully navigate the private placement process for NCDs.

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