“We view this as a pivotal step towards a more resilient and liquid fixed income
ecosystem in India, driving growth from the middle-up,” said Ranjit Jha,
managing director and chief executive officer at investment and wealth
management firm Rurash Financials.
The Securities and Exchange Board of India (Sebi) has issued a series of
proposals to improve the ease of doing business for high-value debt listed
entities.
In its consultation paper released on 27 October, the markets regulator has
recommended increasing the threshold for companies that qualify as highvalue debt listed entities while changing several norms for the board of
directors of such companies.
Mint breaks down the proposed reforms and what it means for the Indian
corporate bond market.
What are high-value debt listed entities?
High-value debt listed entities (HVDLEs) are companies or entities that have
listed debt securities on a stock exchange and have an outstanding value of
listed debt securities of ₹1000 crore or more.
This classification was introduced by Sebi to bring greater transparency,
accountability, and governance standards to entities that raise large amounts
of money from the public debt market.
Under Sebi’s framework, these entities are subject to enhanced compliance and
disclosure requirements compared to regular debt-listed entities.
These include stricter corporate governance norms, detailed financial and
operational disclosures, requirements for the composition of the board of
directors (such as the inclusion of independent directors), and regular
monitoring by debenture trustees. The objective is to safeguard the interests of
investors who invest in such large-scale debt instruments.
What changes has Sebi suggested?
Sebi has suggested raising the threshold for identifying high-value debt listed
entities (HVDLEs) from the current ₹1,000 crore to ₹5,000 crore.
The Indian markets regulator also proposed to replace the term “income” with
“turnover” when defining material subsidiaries, bringing the terminology in line
with the standards already applied to equity-listed entities.
To further strengthen governance, Sebi has suggested that shareholders’
special approval be required for the appointment or continuation of directors
aged above 75 years, ensuring greater scrutiny and transparency in leadership
decisions.
The regulator also proposed excluding the time required to obtain regulatory
or statutory approvals from the deadline for securing shareholder consent for
the appointment or reappointment of directors.
Sebi recommended exempting nominee directors those appointed by
financial regulators, courts, or tribunals from the need for shareholder
approval.
What does it mean for the corporate bond market?
Experts believe that smaller and mid-sized non-banking finance companies
(NBFCs), previously highly regulated due to HVDLE norms, might find the listed
bond market more accessible and cost-effective compared to borrowing from
traditional banks.
Easier listing and reduced compliance are expected to encourage a high
number of debt listings, potentially improving market liquidity for NBFC debt.
“The proposal opens clear opportunities for NBFCs to raise capital more
efficiently. Reduced compliance burden could encourage more issuers to list
debt, deepening market participation and transparency. Larger NBFCs, still under the HVDLE framework, stand to gain from greater regulatory clarity and
streamlined disclosure norms,” said Vineet Agrawal, co-founder of Jiraaf, an
online bond platform.
How will this improve the ease of doing business?
HVDLEs are required to follow stricter governance standards, such as
maintaining a specific board composition and obtaining credit ratings more
frequently typically every six months.
If mid-sized NBFCs move out of this category, they will experience a notable
decline in operational and administrative compliance expenses. This reduction
will allow them to redirect financial resources and management focus toward
their core lending and business operations.
“The change frees mid-sized issuers from governance norms designed for large
corporations, improving borrowing flexibility and lowering operational costs,”
said Agrawal.
Why are some experts cautious?
Despite the optimism, market participants are cautious of some investors who
add special value to the heightened government disclosures mandated for
HVDLEs. As these companies must follow stricter rules, investors see such
entities as more trustworthy and better managed.
If a company’s outstanding debt falls below the HVDLE threshold and it moves
out of this category, it no longer has to follow those enhanced governance
rules. As a result, it might lose some of the “governance premium”, which is the
extra confidence or positive perception that certain investors attach to these
entities.
The general consensus is that Sebi’s recommendations will boost mid-tier
NBFCs’ participation in the corporate bond market.