NCD Intermediaries

NCD Intermediaries include the organizations and the individuals engaged in the end-to-end process of issuance of non-convertible debentures and their listing.

All intermediaries have their set of roles and responsibilities in the issuance of non-convertible debentures. The issuing entity intending to offer the NCD to the public must appoint various intermediaries to act as a bridge between the issuer company and the end investors to ensure the smooth execution of the process at every stage.

Sometimes issuers don't need to appoint all the intermediaries mentioned above, such as arrangers, guarantors and underwriters. The offer document will list the participation of each intermediary in the issue.

Let us discuss these parties in detail.

1. Stock Exchanges

A stock exchange is a marketplace where buyers and sellers come together to trade securities such as stocks, bonds, and derivatives. These exchanges facilitate trading by providing a public market where buyers and sellers can come together and exchange shares.

In case of primary issues like NCD IPO, exchanges act as gatekeepers which list down the guidelines based on the SEBI regulations for listing the securities on the exchange. The issuer company has to choose one of the exchanges (BSE /NSE) as the designated stock exchange for the issue.

A designated stock exchange is an exchange in which the securities of the issuer are proposed to be listed. The issuer chooses the designated exchange for a particular issue under the SEBI NCD regulations. 

The issuer is required to file the draft offer document with the designated stock exchange to seek public comments by posting it on the website of the designated stock exchange.

NCDs can be listed either on both exchanges or on one of them. NCDs listed on the NSE and BSE are traded in the debt segment of the exchange.

2. Regulatory Authorities(SEBI)

Securities and Exchange Board of India (SEBI) is the apex regulatory body in India responsible for overseeing and regulating the securities market. Its main objective is to protect the interests of investors and promote the growth and regulation of the securities market.

SEBI lays down the rules and regulations for the public issue of NCD by the companies under SEBI NCS Regulations (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

SEBI Regulations list down the guidelines, processes, and requirements for the issuance of NCD. It also provides the standard formats and details of disclosures and the quantum of information required to maintain better transparency and help investors with all the material information required to make investment decisions. The regulations also clearly state the procedure in case of violation by the issuers.

3. Lead Manager (Merchant Banker)

The Lead Manager is responsible for managing and overseeing the entire process of issuing NCDs on behalf of the issuer. The main responsibilities of the lead manager include:

• Assisting the issuer in planning the NCD issuance and determining the appropriate terms and structure of the NCDs, such as the coupon rate, maturity period, and redemption features.
• Conducting due diligence on the issuer to ensure that all necessary information about the company, its financials, and the proposed NCD issuance is accurate, complete, and compliant with regulatory requirements.
• Assistance in preparing the offer documents for the issue.
• Conducting investor roadshows, making presentations, and engaging with institutional and retail investors to generate interest in the NCDs. They also help in pricing the NCDs based on the market demand and investor feedback.
• Acting as an underwriter for the NCD issuance (if required). Underwriting involves providing a commitment to subscribe to the unsold portion of the NCDs if the issue does not receive sufficient subscription from investors.
• Coordinating the process of allotment of NCDs to investors and facilitating the listing of the NCDs on the stock exchanges where they are to be traded.
• Working closely with the issuer, stock exchanges, and other intermediaries to ensure a smooth listing process.

4. Debenture Trustee

A debenture trustee, also known as a bond trustee, is a financial institution or entity that is appointed to represent the interests of the debenture holders (bondholders) in a corporate bond issuance.

The primary responsibility of a debenture trustee is to protect the interests of the NCD holders. They act as a custodian of the NCD holders' rights and ensure that the issuer complies with the terms and conditions of the bond agreement.

Here are some key points about NCD debenture trustees:

• Acts as a representative of the NCD holders and safeguards their collective interests.
• Approve the trust deed and ensure the protection of the rights and interests of the NCD holders.
• Monitor and value the collateral/assets in case of default of secured NCD.
• Communicate relevant information and updates to the NCD Holders regarding Interest payments, Maturity or any defaults.

Know more about debenture trustees.

5. Registrar

A registrar is a financial institution or entity appointed by the issuer of Non-Convertible Debentures (NCDs) to maintain records and perform administrative functions related to the NCD issuance. The registrar is responsible for the allotment of NCDs in consultation with the issuer and the stock exchanges. The Registrar has a list of valid and invalid IPO applications.

Following are the roles and responsibilities of the Registrar to the issue:

• Collecting IPO application data from stock exchanges and banks.
• Facilitating the allotment of NCDs to investors.
• Preparing a list of valid applications in cooperation with depositories and banks.
• Preparing the basis of allotment and getting it approved by the stock exchanges.
• Initiation of the refund procedure for non-allotment recipients (if applicable).
• Paying interests on a timely basis as per the cycle chosen by the investor.
• Redeeming the NCDs.

6. Statutory Auditors

The auditors appointed for the NCD issue perform audits and assure the issuer's financial statements and related disclosures. The statutory auditors play a critical role in ensuring the accuracy and reliability of the financial information provided to NCD holders and other stakeholders. The roles and responsibilities of auditors are described below:

• Preparation of unaudited interim financial statements in accordance with Ind AS (Indian Accounting Standards).
• Perform a comprehensive audit of the issuer's annual financial statements, including the balance sheet, income statement, cash flow statement and notes to the financial statements.
• Evaluate the issuer's compliance with relevant accounting standards such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
• Evaluation of internal controls, verification of the accuracy and completeness of financial data, evaluation of accounting estimates and judgments, and verification of the existence and valuation of assets and liabilities.
• Review of the issuer's compliance with legal and regulatory requirements.
• Issuance of the audit certificate for the annual financial statements. The audit opinion may be unqualified (clean report), qualified (with specific reservations), adverse (regarding material misstatements) or a disclaimer of opinion (where the auditors are unable to express an opinion).
• Preparation of an audit report containing their findings, comments and audit opinion. The audit report is made available to the issuer's management, the board of directors and other relevant stakeholders.
• Contribute to maintaining transparency and accountability in the financial reporting process.

7. Bankers to the Issue/Sponsor Bank

The Company shall appoint a Sponsor Bank i.e. a Banker to the Issue who shall act as a conduit between the Stock Exchange and the National Payments Corporation of India (NPCI) to transfer the UPI mandate requests and/or payment instructions from the UPI investors to the UPI and perform all other functions. The banker should be registered with SEBI.

A company can appoint one or more banks to act as bankers to the issue of which one has to be a Sponsor bank. Click here to check the list of SCSBs registered with SEBI for an issue.

Following are the roles and responsibilities of the Banker to the issue:

• Acceptance of ASBA/UPI IPO Applications.
• Receipt of application amount.
• Notifying the registrar of the status of the fund.
• Transferring funds for fees, expenses, and costs incurred in the IPO.
• Arranging refunds for applications that are not accepted.
• Processing payment of interest coupons and maturity proceeds, as applicable.

8. Credit Rating Agency

A credit rating agency (CRA) is an independent organization that rates the creditworthiness of companies, government agencies, and other organizations that issue debt.

CRAs evaluate the issuer's risk of default and issue a credit rating based on their assessment of the issuer's ability to repay its financial obligations.

Credit ratings reflect the issuer's ability to meet its debt obligations. These rating agencies analyze various factors, including the issuer's financial health, industry outlook, market conditions, and NCD terms, to assign ratings. These ratings help investors analyze the degree of safety of their investments.

9. Underwriter

Underwriting of NCD refers to subscribing to the NCD in part or full as the case may be, in case of under subscription.

An underwriter is not mandatory for a public issue of debt securities. The offer document will indicate whether the issue is underwritten or not. If an issue is underwritten, the offer document should contain the following:

• Underwriting party details.
• Underwriting obligations.
• Amount to be underwritten.
• Details of underwriting agreement.

10. Guarantor

A guarantor is a party who undertakes to fulfil the payment obligation in the event of default by the issuing company.

In the public issue of debt instruments, there are generally no guarantors. In the case of a private placement, guarantors are usually appointed. Normally, a party related to the issuing company such as the parent company or a group company or a credit institution such as a bank or a non-bank finance company can act as guarantor.

The guarantor and the issuing company must enter into a deed of guarantee if the NCD has a guarantor. The guarantee given by the party should be unconditional and irrevocable. The offer documents will set out the details of the guarantor and other related details, if any.

11. Arranger

The arranger in an NCD issue is a SEBI-registered merchant banker, broker or an RBI registered primary dealer who bids on behalf of eligible participants on the EBP (Electronic Book Provider) platform. An arranger is usually appointed in case of a private placement of NCD.

The private placement of NCD is when NCD is offered to a selected group of people unlike to the general public as in the case of public issues.

An arranger is responsible for KYC and enrolment of the non-QIB investors bidding through the arranger. The arranger is required to disclose the nature of the bid placed through them as to whether the bid is proprietary or placed on behalf of the eligible participant.

12. Legal Advisor

A legal advisor helps the issuer in the legal and advisory-related matters in the issuance process. The legal advisor assists the lead manager in completing the due diligence, drafting of offer documents, disclosure standards, etc.

A legal advisor acts as the capital market lawyer for the issuer and helps the company in seeking any regulatory clarifications and approvals.