Mint Explainer: How firms will benefit from Sebi’s decision on debt financing

What was the key decision?

Sebi has approved the proposal to provide flexibility in the framework for large corporates (LCs) to meet their financing needs from the debt market. Under the framework for large corporates, Sebi has proposed a higher monetary threshold for defining such entities, thereby reducing the number of entities qualifying as large. 

Last month, the regulator floated a consultation paper and proposed increasing the threshold to identify large corporates to at least ₹500 crore in outstanding long-term borrowings, from the current ₹100 crore. Sebi has also decided to introduce incentives and moderated disincentives.

What is the current requirement for such large corporates?

Currently, the regulations require corporate borrowers to secure at least 25% of the incremental borrowing during the financial year through debt securities. This was announced in 2018, and the move was aimed at deepening the corporate bond market.

What will be the impact of Sebi’s decision?

Experts believe that Sebi’s decision to raise the monetary threshold for defining LCs narrows the scope to only include truly large entities, thus potentially reducing regulatory and compliance burdens on smaller firms that no longer fit this category. 

Sonam Chandwani, partner, KS Legal, believes that the removal of penalties for large corporates unable to meet a certain quota of incremental borrowing from the debt market offers greater financial flexibility. She said it is especially beneficial for LCs that might otherwise face financial stress, as they now have more scope to explore alternative financing options like bank loans or equity financing without fearing punitive measures. 

These changes seem designed to make the financial market more accommodating and less restrictive for LCs, although the specific impact would vary depending on the details of the incentives and disincentives introduced, said another legal expert.

What were the other decisions by Sebi ?

The regulator has also approved a proposal pertaining to creation of a regulatory framework for segregation of unclaimed amounts of investors in the Investor Protection and Education Fund (IPEF). This will facilitate utilization and processing of such amounts as prescribed by the board. Aimed at streamlining the credit of unclaimed amounts and provide for claims of unclaimed amounts, the board has approved amendments to its IPEF Regulations, the regulator said. 

Sebi has also extended the timeline to comply with enhanced qualification and experience requirements for Investment Advisers. The Sebi (Investment Advisers) (Amendment) Regulations, 2020, required individual investment advisers, principal officers of non-individual investment advisers, and persons who are with the investment advisers and associated with investment advice to comply with enhanced qualification and experience requirements by 30 September. This timeline has now been extended till September 2025.