Around one-third of the identified large corporates did not raise the minimum 25 per cent of their incremental borrowing through issuance of debt securities in FY 2021-22.

SEBI had mandated large corporates (LCs) to raise at least 25 per cent of their incremental borrowings during a financial year (FY) by issuing debt securities. This measure was envisaged to assist in deepening the corporate bond market in India.

SEBI has been monitoring compliance by the LCs with the provisions of the LC chapter.

The markets regulator is in receipt of representations from various stakeholders, including entities that have been identified as LCs.

Raising funds from banks and financial institutions is a cost-effective option as compared to raising funds from debt securities. In most of such cases, meeting with the requirement of 25 per cent of incremental borrowing through debt securities has become costlier due to tightening liquidity and hikes in the benchmark rate.

In case of certain industries — like the textile industry for example — the Central and various state governments provide special packages/incentives to have access to timely and adequate capital at internationally comparable rates by providing interest subsidy benefits on the term loans raised for the new capital investments.

However, such interest subsidy benefits are not available when funds are raised through debt securities. Due to nonavailability of such benefits, the borrowing cost through issuance of debt securities is high, which impacts the viability of the project, thus impacting its feasibility.

For companies such as those in the power sector, where tariffs are regulated, the cost of debt has a major bearing on tariff rates. A higher cost of debt would translate to higher tariff. Availability of credit at a lower cost is crucial in computation of such tariffs to final consumers.

Currently, the threshold for the criteria of outstanding long term borrowings for the purpose of identifying any entity as LC is Rs 100 crore or above.

The threshold for the outstanding long term borrowings is proposed to be increased to Rs 500 crore or above, which is in line with the present threshold for an entity to be called as ‘high value debt listed entity’.

It was felt that the threshold should be aligned with the threshold of “high value debt listed entity” to have uniformity in the Regulations. This would also be a breather for companies with outstanding long term borrowings of less than Rs.500 crores to prepare themselves for compliance with these provisions once the framework becomes applicable to them.

Currently, the framework is applicable for all listed entities having a credit rating of “AA and above”, where credit rating shall be of the unsupported bank borrowing or plain vanilla bonds of an entity, which have no structuring/ support built in; and in case, where an issuer has multiple ratings from multiple rating agencies, the highest of such ratings shall be considered for the purpose of applicability of LC framework.

Requirement of rating as a criterion for identifying any entity as LC may be removed.

Imposition of penalty for failure to achieve specified level of borrowings (25 per cent) is proposed to be removed keeping in mind the spirit of ease of doing business. Instead of levy of penalty, an incentive and disincentive structure is proposed.

As far as the disincentive mechanism is concerned, the additional contribution envisaged in case of a shortfall in borrowings is proposed to be pegged at a much reduced scale compared to the current level of penalty; further, the same is also proposed to be without linking the same to tenure of the bond issuance.