1. Home
  2. »
  3. Enforcement
  4. »
  5. Informal Guidance

Informal Guidance - Interpretive Letter - Clarifications on the listing of debentures issued on a private placement basis

Oct 11, 2004
|
Informal Guidance
 

  

Query under Informal Guidance Email:-sundaresanvs@sebi.gov.in

 

NFCL/CORPFIN/635/2004-05

September 3, 2004  

Securities and Exchange Board of India  

Market Regulations Department
‘B’ Wing, Mittal Court
224, Nariman Point
Mumbai – 400 021

 

Dear Sirs

 

Sub: Request for Guidance under SEBI (Informal Guidance) Scheme 2003

 

 

Nagarjuna Fertilizers and Chemicals Limited (NFCL) is a listed Company, carrying on the business of manufacturing and trading in Fertilizers. The Company was granted restructuring of its debts under the Corporate Debt Restructuring (CDR) scheme in March 2004 with effect from 1st April 2003. Under the scheme, reduction of interest on the debts as well as deferment of payment of principal instalments, were granted to the Company.

 

Under the approved CDR scheme, the interest differential for the first year, i.e. 2003-04, is to be converted into ‘Zero Coupon Debentures’ secured by second charge, redeemable after the entire debt liabilities are fully repaid, i.e. during 2016-17. The Company has to issue debentures to its lenders, as above.

  

Relevant Provisions of SEBI Notifications:

  1.  
    1. Circular No.SEBI/MRD/SE/AT/36/2003/30/09 dated September 30, 2003 ‘Secondary Market for Corporate Debt Securities’ issued by Market Regulation Department – Policy and

      2.  

    2. Circular No.SEBI/MRD/SE/AT/46/2003 dated December 22, 2003 ‘Secondary Market for Corporate Debt Securities-Clarifications’ from Market Regulation Department-Policy 

 

  1. According to Para 1 of the Circular dated 30th September 2003, "… it has been decided that any listed Company making issue of debt securities on a private placement basis and listed on a Stock Exchange shall be required to comply with the following:-’’

    2.  

ii) According to Para 1.2, "the debt securities shall carry a credit rating of

not less than investment grade ……."

 

 

iii) In the Circular dated 22nd December 2003 (Para 4.1(ii) c), it is mentioned

 

that

 

‘……if the issuer Companies do not comply with aforesaid conditions for listing of such securities before 31st March 2004, then such securities would remain unlisted and would therefore, not be permitted for trading in the stock exchange trading platform from 1st April 2004".

  

 It appears from the above that the above provisions are not applicable to our Zero Coupon Debentures as they are not intended to be listed.

 

The Company was granted debt restructuring due to its financial difficulties and on the basis of the current financial position of the Company, it is not likely that it will be given a credit rating of ‘investment grade’.

 

The debentures are to be issued on private placement basis. Neither the lenders nor the CDR Cell has stipulated requirement for listing/credit rating of the debentures.

 

In the light of the above, please clarify whether listing is mandatory for the above debentures.

 

We enclose a Demand Draft for Rs.25,000/- in favour of ‘Securities Exchange Board of India’, payable at Mumbai, towards the prescribed fee.

 

We seek your clarification, at an early date.

 

Thanking you

 

Yours faithfully

for Nagarjuna Fertilizers and Chemicals Limited

 

D Bhaskara Rao

Vice President-Finance

 

 

 

Reply given by MRD-Division of Policy

Deputy General Manager

Market Regulation Department – Policy

 

MRD/Policy/IGS/AT/ /2004

October 11, 2004

Shri D Bhaskara Rao
Vice President - Finance
Nagarjuna Fertilisers and Chemicals Ltd
Nagarjuna Hills
Hyderabad– 500 082

Dear Sir,

Sub: Informal Guidance – Interpretive Letter – Clarifications on the listing of debentures issued on a private placement basis.

 

Ref: Request for Guidance from Nagarjuna Fertilisers and Chemicals Ltd. (NFCL) vide letter dated September 03, 2004.

  1.  
    1. The provisions of Para 4.1 of the SEBI circular dated December 22, 2003 read as under:-

      2.  

 

"i. Type of Issuer companies

 

ii. Prospective and existing issues

 

  1.  
    1. The aforesaid SEBI circulars are applicable to securities issued by listed companies provided the issuer companies are desirous of listing and trading these securities in the Stock Exchange trading platform. If the issuer companies do not wish to get their securities listed, such securities may remain unlisted; however, such securities would not be eligible for trading in the Stock Exchange trading platform.

      2.  

        1. In view of the above and since you have submitted that the ZCDs proposed to be issued are not intended to be listed in the Stock Exchanges, it is clarified that the provisions of the aforesaid SEBI circulars would not be applicable. However, if you intend to list and trade these securities in the Stock Exchange trading platform, then you shall comply with the provisions of the same.

      2. The above clarifications are based on the representation made to the Department in your aforesaid letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.

        3.  

           

          V S SUNDARESAN
          Yours faithfully,

 

Interpretive Letter - Listing of Debentures issued on Private Placement