SEBI Redefines ‘Large Corporates’ (LCs) | Relaxes Borrowing Norms for LCs Through Issuance of Debt Securities

Circular no. SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2023/172; Dated: 19.10.2023

SEBI has revised the framework for fund raising by issuance of debt securities by large corporates (LCs)[ Large corporates are entities with outstanding long-term borrowings of at least Rs 100 crore or above, possessing a credit rating of ‘AA and above’ and having their debt securities listed on a recognised stock exchange. ]. Under the revised framework, an entity with outstanding long-term borrowings of Rs 1000 crore or above would be classified as an LC.

The SEBI has replaced the term ‘incremental borrowings’ with “qualified borrowings”. Starting from FY 2025, the requirement of mandatory qualified borrowing by an LC i.e. 25% in an FY shall be met over a contiguous block of three years.

Further, SEBI has introduced incentives for LCs in cases of surplus in the requisite borrowings (i.e. when the actual borrowings through debt securities exceed 25% of the qualified borrowings for the FY). The following incentives shall be available to the LC –

(a) Reduction in the annual listing fees of FY “T +2” pertaining to debt securities or non-convertible redeemable preference shares.

(b) Credit in the form of a reduction in contributions to the Core Settlement Guarantee Fund (SGF) of the Limited Purpose Clearing Corporation (LPCC).

In the event of a shortfall in the requisite borrowings (i.e. when actual borrowings through debt securities are less than 25% of the qualified borrowings for FY “T”), a dis-incentive in the form of additional contribution to the Core Settlement Guarantee Fund (SGF) shall be imposed.

Also, LCs will need to comply with the requirement of raising 25% of their incremental borrowings during FY 2022, FY 2023 and FY 2024 respectively by way of issuance of debt securities till March 31, 2024. In the event of failure to do so, such LCs will need to provide a one-time explanation in their annual report for FY 2024.

The framework will come into effect from April 1, 2024 for LCs following April-March as their financial year, while the same will be applicable from January 1, 2024 for LCs that follow January-December as their financial year. The circular shall be effective immediately.

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