Background and Rationale

SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 mandate comprehensive disclosures in offer documents to ensure transparency and investor protection. However, some issuers were circumventing this by referring to external documents like side letters for disclosing vital covenants such as accelerated payment clauses. These practices diluted the intent of Schedule I disclosures. SEBI, through BSE, has now clarified that such external referencing contravenes disclosure norms, necessitating this directive to enforce proper compliance.

Detailed Comparison of Provisions

Earlier Practice:
Issuers often disclosed only partial information in the offer document and referred to external documents such as side letters for key financial or contractual covenants.

Current Requirement:
All disclosures prescribed under Schedule I must be fully incorporated within the offer document. External references whether through side letters, annexures, or separate agreements are explicitly prohibited.

Amendments and Their Implementation

BSE’s notice enforces the following directives for issuers of debt instruments via private placement:

• All mandatory disclosures, including those related to financial covenants and other material terms, must be included in the main offer document.      
• References to side letters, annexures, or supplementary documents for key terms are not permitted.
• This applies to all types of non-convertible securities, including:
  • Non-Convertible Debentures (NCDs)
  • Non-Convertible Redeemable Preference Shares (NCRCPS)
  • Perpetual Debt Instruments (PDIs)
  • Perpetual Non-Cumulative Preference Shares (PNCPS)
  • Structured or Market Linked Debentures (MLDs) to be issued on Private Placement basis
• An updated checklist has been released to help issuers comply with these disclosure requirements.

Implications and Future Prospects

Issuers must promptly reassess and revise their offer documentation processes. Legal, compliance, and financial teams must eliminate dependency on supplementary documents and ensure comprehensive, standalone disclosures. Going forward, adherence to this requirement will be critical to avoid regulatory scrutiny and ensure listing approvals.

Conclusion

This directive underscores SEBI’s commitment to transparent and standardised disclosures in the debt market. Issuers must incorporate all required details within the offer document as per Schedule I of the SEBI NCS Regulations. The updated checklist provided by BSE serves as a practical compliance tool to guide issuers in aligning with these expectations.