SEBI clarifies on perpetual debt instrument/non-cumulative preference share issuance and listing

Circular No. SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2023/027, Dated 08.02.2023

Chapter V of the SEBI (Issue and Listing of Non-convertible Securities) Regulations, 2021, prescribes conditions for the issuance and listing of perpetual debt instruments/non-cumulative preference shares and similar instruments. Now, upon receiving references from market participants, including issuers and merchant bankers, seeking clarity on the applicability of the provisions of Chapter V of the NCS Regulations, the SEBI has provided clarity on the applicability of Chapter V as requested by the market participants.

SEBI prescribed the list of the characteristics of the securities on which the said provisions will be applicable. Some of the characteristics are as follows:

• The issuer is permitted by RBI to issue such instruments,
• The instruments form part of non-equity regulatory capital,
• The instruments are perpetual debt instruments, perpetual non-cumulative preference shares or instruments of similar nature and
• The instruments contain a discretion with the issuer/RBI for events.The SEBI further clarified that the instruments contain a discretion with the issuer/RBI for events including but not restricted to all or any of the below events:
• Conversion into equity
• Write off of interest/principal
• Skipping/delaying payment of interest/principal
• Making an early recall and
• Changing any terms of issue of the instrument. This circular shall come into force from 08.02.2023.

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