NCD IPO Process

The process for issuance of NCDs by public companies in India is similar to the IPO process. The issuer has to appoint a merchant banker to issue NCDs.

The merchant bankers registered with SEBI manage the entire process of NCD issuance. This begins with the preparation of the issue document, due diligence, issue subscription, allocation, refund, listing and post issue activities.

Before we understand the process of issuing NCDs, let us take a quick look at the eligibility criteria for issuing NCDs.

NCD Eligibility

Any company may issue NCDs if it meets the following conditions at the time of filing the draft offer document or offer document:

• The issuing company, the promoter of the company/group or the directors are not restricted from accessing or dealing in the securities market directly or indirectly through another company.
• The issuing company and the promoters/directors of the company are not in default.
• The promoters/directors of the company are not fugitive economic offenders, i.e. persons against whom criminal proceedings are pending or against whom an arrest warrant has been issued.
• The issuing company has paid all fines or penalties imposed by SEBI or the stock exchange.
• The issuing company has not defaulted on the payment of interest or principal on previously issued non-convertible securities for more than six months.

NCD Issue Procedure

The NCD issuance process starts with the approval by the Board of Directors.

Once the company has decided to issue NCD it has to follow the below broad steps:

• Appoint intermediaries.
• Submit the offering documents.
• Issue NCDs and get them listed on the stock exchange.
• Make interest payments according to pre-established terms.
• Pay the principal on the maturity date.

Let us have a look at these steps in greater detail:

1. Appointment of merchant bankers/lead manager

The issuing company is required to appoint one or more SEBI-registered merchant bankers as lead manager(s) for the issue. If the issuer appoints more than one merchant banker, their roles and responsibilities should be listed in the offer document.

2. Appointment of other intermediaries

The issuer should also appoint other intermediaries who can assist in the smooth execution of the NCD issuance.

1. Depositories

   The issuer shall enter into an agreement with a depository/ies for the dematerialization of the non-convertible securities in accordance with the Depositories Act, 1996 (22 of 1996).

2. Debenture Trustee

   When issuing debt securities, the issuer must appoint a trustee for the debt securities.

3. Registrar to the Issue:

   The issuer should appoint a registrar for the issue to take care of the allotment and redemption of the NCD.

3. Preparation and filing of offer documents

The merchant banker assists the issuer in the preparation of the offer documents (shelf/tranche/draft/final). The issuer must obtain in-principle approval for the offer from the BSE and the NSE. The draft offer document should be made available to the public on the website of the Exchange for seeking their comments for a period of seven working days from the date of submission of the draft offer document to the Exchange.

The offering documents should also be uploaded to the website of the issuer and the lead manager.

The lead manager should ensure that all comments received on the draft offer document are properly considered before filing the offer document with the company register.

4. In-principle approval

The issuer should apply to the BSE or NSE and obtain "in-principle approval" from the stock exchanges for the listing of its non-convertible securities. If the application is made to more than one stock exchange, the issuer shall select one of them as the designated stock exchange.

5. Pricing and determination of the coupon rate

The issuer must determine the price and coupon rates of the NCD. This can either be fixed or done through a book-building. Generally, it is fixed in nature.

6. Advertisement of NCD

Once the prospectus is filed with the registrar, the issuer should advertise the issuance of NCD. The issuer should follow below guidelines while advertising their issue:

• The NCD advertisement should be placed in a local and national English-language daily newspaper with a higher circulation at the place of issuer's registered office.
• The issuer should not place advertisements that mislead investors and should not contain manipulative or misleading information.
• The advertisement should be truthful, fair and clear. It must not contain any untrue or misleading statements, promises or projections.
• Information that is not contained in the offer document should not be included in the advertisement. It should not include models, famous people, fictional characters, famous places, cartoons or other images that would be inappropriate for the promotion of the public offer.
• The information in the offering document should be used in the advertisement to promote the investment.
• All company or product advertisements must be submitted to the stock exchanges before the closing date of the offer.
• The credit rating should be disclosed in the advertisement.

7. NCD Subscription

• An NCD issue is usually kept open for 10 working days.
• The NCD issue should subscribe to at least 75% of the base issue size.
• In case there is no minimum subscription, the issuer should return/release all subscription money within eight working days of the closure of the issue.

The issuer may retain an oversubscription of up to 100% or less of the base issue size. For example, if the base issue size is Rs 100 Cr, the issuer may retain an oversubscription of Rs 100 Cr The total volume of the issue can therefore amount to Rs 200 Cr.

8. Allotment Process and Listing

The registrar manages the entire allotment procedure. The NCD allocation is done on a first-come, first-served basis.

Once the allotment and refund procedures are completed, the NCD will be listed by the issuer on the selected stock exchange(s). After listing, any investor can buy/sell the NCD through the secondary market.

Points to Note:

• The issuer is required to make timely interest payments to investors in accordance with the interest rate and payment schedule chosen by them.
• The issuer should not offer any person connected with the offer any monetary consideration, in kind or otherwise, for applying under the offer.
• The issuer must have at least one credit rating from any of the credit rating agencies registered with SEBI.

An NCD issue may or may not be underwritten. The NCD offer document must contain the following information

• The issuer must issue an abridged prospectus and NCD application form in the format prescribed by SEBI.
• The issuer must set up a recovery expense fund with the Designated Stock Exchange for an amount equal to 0.01% of the issue size, subject to a maximum limit of Rs 2,500,000 at the time of application for listing of NCDs, to enable the Debenture Trustees (DTs) to take prompt action in the event of default of the listed debentures.

NCD Listing Requirements

The issuing company must meet the requirements set by the respective stock exchanges chosen by the issuer for listing. Let's take a look at the procedure for the NCD listing process for BSE and the NSE.

1. BSE NCD Listing Requirements

A. BSE NCD Listing Checklist

The BSE requires the issuer to submit the following information/documents for listing purposes:

• Copy of the prospectus and name and address of the board of directors.
• ISIN code for each NCD series to be issued.
• Confirmation of timely processing of redemption orders and allotment monies to the relevant parties.
• Compliance Officer's statement in the format prescribed by SEBI confirming that none of the directors, promoters or the issuer has violated or breached SEBI Regulations.
• Listing agreement.
• Post-issuance capital distribution schedules.
• Certified copy of the resolution of the board of directors on the allotment of securities, including the total number of securities allotted by the issuer.
• Certified copy of the three-day monitoring report.
• Certificate from the Statutory Auditor/Practicing Auditor/Company Secretary that the allotment has been made in accordance with the basis of allotment approved by the designated stock exchange.
• Confirmation from the Depository about the lock-in period of securities issued in dematerialized form, if any.
• Certified copy of a letter from the Registrar and Lead Manager regarding the dispatch of shares/bonds/certificates, allotment notices, refund orders, subscription commissions, upload of electronic credit of securities, upload of ECS/NEFT/RTGS credits and brokerage invoices.
• Reconciliation report from the registrar reconciling the total securities allotted with the total securities credited to the depositories.
• List of the 200 largest allottees stating the number of securities allotted and their address.
• Certificate from the lead manager and the issuer that the issue complies with all the requirements of the SEBI Regulations and all other applicable laws, rules and regulations.
• Certified copy of the basis of allotment approved by the designated stock exchange.
• Copy of the internal minutes executed between the lead manager, the issuer and the registrar.
• Display of a copy of the basis of allotment.
• List of allottees as a soft copy on CD (Compact Disc) showing the number of securities applied for and allotted, the amount paid, bank details, etc.
• Copy of the confirmation letter from the Registrar to the merchant bank regarding the information it has verified with the depositories (NSDL/CDSL).

B. Documents for BSE in-principle approval

The issuer must submit the following documents to obtain approval in principle from BSE for the public issue of non-convertible debt securities:

• A certified copy of the resolution of the Board of Directors/ relevant committee and shareholders authorizing the issue of NCDs.
• A certified copy of the resolution of the Board of Directors providing for listing of the NCDs on the BSE.
• Letter of approval from the Debenture Trustee(s) and Registrar.
• Copy of arrangement entered with the depository for dematerialization.
• Credit rating certificate for the proposed issue. Note: The certificate should not be older than one month from the date of opening of the issue. (Note: These securities can be registered with any other depository).
• One softcopy and 2 hard copies of the Draft Disclosure Document/ Shelf Prospectus and any amendments thereto.
• In the case of secured instruments, a Due diligence certificate from the debenture trustee as per Annexure A of SEBI circular no. SEBI/HO/MIRSD/CRADT/CIR/P/2020/218 dated November 03, 2020, and any amendments thereto.
• SEBI SCORES ID.
• Copy of SEBI Registration Certificate for the Merchant Banker appointed as Lead Manager.
• Name and PAN of the issuer, promoter and directors DIN of the Directors.
• Undertaking from the issuer as per Annexure I as given in the principle checklist on BSE.
• Undertaking from Lead Manager Banker in the format prescribed by SEBI confirming that the issuing company, promoter and directors are eligible to issue NCDs and comply with SEBI regulations and that the lead manager is not an affiliate of the issuer.
• If the issuer is a new company, the company must submit the following additional documents:
  • A certified copy of the company's annual reports for the last three financial years.
  • A certified copy of the certificate of incorporation, memorandum and articles of association of the issuing company.
  • Copy of RBI certificate stating whether the issuer is a deposit-taking or non-deposit-taking NBFC (in case of an NBFC).

Note: The above charges are exclusive of GST.

D. BSE NCD Public Issue

The issuer has to enter into a series of agreements with various parties and submit various information and documents to get the NCD listed on the BSE.

At the NCD opening stage, BSE requires the following documents:

• Agreement between the BSE and the issuing company for submission of online bids and applications by the investors through the web interface or an application.
• Agreement with the BSE on the use of the software.
• Details of depository fees paid and details of beneficiary in case of refund.
• Declaration of commitment by the registrar.
• Declaration of the sponsor bank.

At the time of basis of allotment, BSE requires the following documents:

• Documents required at the time of basis of allotment.

Depending on whether the BSE is selected as the designated exchange or not, the issuer must submit various documents, which are listed under the link above.

• BSE NCD Listing Agreement

The issuing company must submit the listing agreement on Rs 100 stamp paper.

2. NSE NCD Listing Requirements

A. NSE NCD Listing Checklist

The NSE also has several requirements and documents for the listing of NCDs, just like BSE. The issuer can refer to the NSE Debt Public Issue checklist for the list of documents and application forms for listing NCD with NSE.

The checklist contains the below:

• Letter of application.
• Form of listing application.
• List of documents and information for applying for in-principle approval of the NSE for new issuers in the capital market segment and for already listed issuers in the capital market segment.

The issuer can assess the requirements and choose the designated exchange and exchange for listing as per their requirements.