SEBI’s Breather For HVDLES, Changes To The EBP Platform And More In Store!
While most of the changes proposed by SEBI may have a positive impact on the Indian corporate bond market, given the statement by SEBI’s current chairperson, Mr. Tuhin Kanta Pandey, on the need for “optimum regulation” and for “regulatory simplification”, the form and shape in which SEBI brings about the changes under these consultation papers remains to be seen
India’s increasing developmental ambitions depend on, among other things, reliable access to capital, and the rise in demand has fuelled growth in the Indian corporate bond market. Against this backdrop, the Securities and Exchange Board of India (‘SEBI’) has been attempting to evolve and deepen the Indian corporate bond market through the introduction as well as amendment of various regulations governing listed non-convertible debentures.
HVDLE BREATHER
SEBI has recently amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR Regulations’) incorporating certain changes, effective March 27, 2025, to the regime governing corporate governance norms applicable to high value debt listed entities (‘HVDLEs’). A few key changes are:
1. Relaxation in threshold for classification as HVDLEs
Previously, entities with listed non-convertible debt securities with an outstanding principal amount of INR 500 crore or more were classified as HVDLEs. This threshold of INR 500 crore has now been increased by SEBI to INR 1000 crore.
Resultantly, the number of entities that would be classified as HVDLEs, and that would consequently have to comply with certain corporate governance norms under the SEBI LODR Regulations, would now be far lesser in number.
2. Introduction of a ‘sunset clause’ for HVDLE classification
Prior to the amendment, once an entity was classified as an HVDLE, it would remain so until all the listed non-convertible debt securities issued by it were redeemed. SEBI has now introduced a much needed ‘sunset clause’ by which, if the outstanding principal amount of an HVDLE’s listed non-convertible debt securities as of March 31 in a particular year reduces and remains below the threshold of INR 1000 crore for three consecutive financial years, the issuer entity will no longer be treated as an HVDLE and the corporate governance norms will no longer apply.
3. Introduction of dedicated chapter for HVDLE corporate governance norms
SEBI has also segregated the corporate governance norms for those HVDLEs whose ‘specified securities’ are not listed by introducing a new chapter in the SEBI LODR Regulations i.e., Chapter VA. The move to implement this was timed to perfection, as otherwise, such HVDLEs would have had to comply with the previously applicable corporate governance norms, which were applicable to those entities whose ‘specified securities’ are listed. Some of the key changes from the previous regime are:
a. Approval of NCD trustee and holders for related party transactions
Prior to the amendment, all related party transactions (‘RPTs’) and subsequent material modifications to RPTs required prior approval of the audit committee of the HVDLE, and all material RPTs and subsequent material modifications required approval of shareholders of the HVDLE. Now, prior to seeking the approval from shareholders, HVDLEs must first obtain no-objection certificates (‘NOCs’) from the debenture trustee of listed non-convertible debt securities (‘NCDs’) and (via the debenture trustee) the holders of such listed NCDs who are not related to the HVDLE and hold at least 50% of the listed NCDs in value on the basis of voting (including e-voting). The HVDLE can proceed to obtain the approval of the shareholders only after the NOCs of these debenture holders is obtained as aforesaid.
b. Flexibility in constitution of committees
The board of directors of HVDLEs has now been granted flexibility to constitute key specialized committees viz., the nomination and remuneration committee, the stakeholders relationship committee and the risk management committee, or to discharge the functions of these committees by itself. This will likely reduce compliance burden on HVDLEs and prevent multiple committees being formed by HVDLEs.
It is important to note that life does not change for those HVDLEs whose ‘specified securities’ are listed and such entities are required to continue to comply with corporate governance norms under regulations 15 to 27 of the SEBI LODR Regulations.
CHANGES TO THE EBP PLATFORM
SEBI has also issued a circular dated May 16, 2025 introducing certain key amendments to the Electronic Book Provider (‘EBP’) platform. The EBP platform, introduced in 2016, is a digital marketplace for conducting private placements of debt securities, ensuring better price discovery and allocation efficiency and is a key mechanism to regulate and enhance the transparency of India’s corporate bond market. It mandates that issuers conducting private placements above a certain threshold use the platform to ensure transparency and regulatory oversight. A few key recent changes are:
1. Reduction of EBP Threshold from INR 50 Crore to INR 20 Crore
SEBI has reduced the threshold for mandatory use of the EBP platform from debt issuances of over INR 50 crore and more to INR 20 crore and above for private placements of debt securities and non-convertible redeemable preference shares. The reduction seeks to bring more transactions under regulatory oversight, with SEBI’s objective being greater price discovery, transparency and standardization.
Even if one were to leave out regulatory concerns surrounding EBP being mandated for private placements, this change, although aimed at increasing regulatory oversight on the processes involved in a broader range of issuances, now means that smaller issuances will also have to factor in a longer timeframe to completion. Such issuances will also now have to face the same complications faced by issuances which are, at present, covered under the ambit of the EBP mechanism.
2. Removal of ‘Time’ from Price-Time Priority and Yield-Time Priority
SEBI has removed ‘time’ as a factor in bid allocation on the EBP platform, replacing the price-time and yield-time priority mechanisms with a new system that eliminates the advantage of early bids. Under the previous framework, investors who bid first at the same price or yield received priority in allocation. The amendment seeks to ensure a fairer and more competitive bidding process, preventing investors from gaining an advantage simply by bidding faster.
While this move is consistent with past instances of SEBI attempting to remove time-based priority in the bidding process, this change will reduce the advantage of faster bidders even further, ensuring a fairer allocation among investors bidding at the same price. This change could potentially increase uncertainty in allocation outcomes, particularly for investors who rely on timing strategies. Moreover, some issuers may need to adjust pricing strategies to account for the shift from a timing-based to a yield-based competitive environment.
WHAT ELSE IS IN STORE?
SEBI has also released two more consultation papers in the recent past, some provisions of which are yet to be implemented: (i) the first on November 4, 2024, titled “Measures for reforms to Debentures Trustees Regulations including towards Ease of Doing Business” (‘Consultation Paper on Debenture Trustees’) and (ii) the second on March 20, 2025, titled “Consultation paper on review of provisions pertaining to Electronic Book Provider (‘EBP’) Platform and Request for Quote (‘RFQ’) Platform” (‘Consultation Paper on EBP and RFQ Platforms’). These consultation papers seek to make the regulatory framework more adaptive by reducing compliance burden on stakeholders, particularly issuers and are aimed at improving business efficiency.
Consultation Paper on Debenture Trustees
A debenture trustee plays a vital role in any debt-funding transaction, especially when the debt securities are to be listed on stock exchanges. The duties, rights and obligations of a debenture trustee emanate primarily from the debenture trust deed and the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 (‘SEBI DT Regulations’), which inter alia provide for the duties of the debenture trustee. Any entity desirous of issuing debt securities is required to appoint a debenture trustee registered with SEBI. This consultation paper seeks to incorporate several significant changes to the SEBI DT Regulations, some of which are:
1. Specifying Activity-Based Regulations for Debenture Trustees:
SEBI has observed that, debenture trustees are engaged in several other services beyond their debenture trusteeship services such as security trustee, escrow agent, facility agent etc., which do not fall within the ambit of activities regulated by SEBI. While the revenue from activities regulated by SEBI constitutes only 30% of the total revenue of the trusteeship business, a significant chunk of revenue originates from activities which are regulated by other financial sector regulators, or may even be unregulated.
Considering this, SEBI proposes that debenture trusteeship activities, which are not regulated by any financial sector regulator, must be hived off to a separate legal entity. Debenture trustees may continue to carry out activities which are under the purview of any financial services regulator, or activities notified by SEBI, while complying with guidelines prescribed by the respective regulators.
While this proposed change provides clarity on the roles of debenture trustees and reduces regulatory ambiguity to ensure that debenture trustees retain their primary focus on their roles which fall under the purview of a financial services regulator, it also presents certain practical challenges. The increased compliance cost for debenture trustees could potentially lead to higher fees for issuers and investors. Further, transition challenges in separating regulated and non-regulated activities may create operational inefficiencies. The lack of a clear mechanism from SEBI for managing legacy contracts and ongoing relations and the proposal that the hived off entity would be subject to branding restrictions could also present separate challenges for debenture trustees and potentially, some resistance from the debenture trustees.
2. Aggregation of Debenture Holders across ISINs for Voting and Decisions
Currently, any default committed by an issuer of listed debt securities, is considered as a default at the International Securities Identification Number (‘ISIN’) level which creates challenges when security interests are shared across multiple ISINs. Debenture trustees face difficulties in obtaining approvals from ISIN-holders, since a default under one ISIN does not always trigger a default across other ISINs.
Accordingly, SEBI proposes that since all the terms and conditions are the same for all ISIN-holders at the ISIN level, the reckoning of an event of default, voting and decisions thereafter shall continue to be done at the ISIN level itself, and in cases of shared pari-passu security interests, the decisions and voting between the ISIN-holders can be aggregated across all ISIN-holders. SEBI also proposes to introduce a definition of “cross-default” for the SEBI LODR Regulations which trigger a default across other ISINs in case of a default under one ISIN.
The aggregation of voting across ISINs with shared security on a pari-passu basis streamlines the enforcement process and strengthens investor protection by enabling collective action in case of an event of default. The introduction of the definition of “cross default” also reduces ambiguity. However, the aggregation process may complicate decision-making, especially with multiple debenture trustees involved and no clear directions on the process for co-operation. This may also reduce flexibility for certain holders of securities who might prefer to act independently.
3. Rights of Debenture Trustees
The SEBI DT Regulations focus mainly on the duties of debenture trustees and do not provide for a distinct set of “rights” of debenture trustee – regulation 15 of the SEBI DT Regulations provides certain duties of debenture trustees which are in fact in the nature of rights. In light of this, SEBI proposes to introduce specific provisions captioned as “rights of debenture trustees exercisable to aid in performance of their duties, obligations & responsibilities”, such as the right to inspect the books of accounts and registers of the issuer.
SEBI seeks to empower debenture trustees to perform their duties more effectively by clearly outlining their rights, which in turn could increase the confidence of investors in the debt capital market. However, this is bound to increase the compliance burden on issuer entities, with higher costs likely to eat into the returns to investors as part of the all-in-cost for transactions.
4. Modifications to the Manner of Utilization of Recovery Expense Fund (‘REF’)
SEBI has observed that while the broad purpose of the REF is outlined in the SEBI DT Regulations, the SEBI DT Regulations do not provide a specific list of activities for which the REF can be utilized. Therefore, SEBI has inter alia proposed the following entries which can be reimbursed from the REF: (a) obtaining various consents from debenture holders, (b) voting process, and (c) filing court applications. Additionally, instead of obtaining prior approval of debenture holders before utilizing funds from the REF, the debenture trustee would merely need to intimate the debenture holders of the utilization of funds.
This proposal intends to strengthen the enforcement ecosystem for listed non-convertible debt securities by expanding on the permissible uses of REF for faster and more effective recovery actions. While this is a progressive move, lack of prior approval from debenture holders for utilization of funds could raise concerns about the transparency and accountability of the process and investors may feel excluded from the decision-making process. Additionally, unpaid debenture trustee fees being excluded from permissible REF expenses could discourage debenture trustees from aggressively enforcing claims and from incurring further costs, unless they are reimbursed by debenture holders or from enforcement proceeds.
5. Standardized Debenture Trust Deed
Perhaps the most significant change proposed by SEBI is the introduction of a standardized (model) form of a debenture trust deed (‘DTD’). SEBI has observed that while the SEBI DT Regulations provide the broader principles of a DTD, they do not prescribe any standard draft, which has resulted in differences in contractual terms and documentation across issuances.
SEBI has, therefore, prescribed a model DTD in the Consultation Paper on Debenture Trustees, to be adopted by issuers across all issuances of listed non-convertible debt securities. This DTD is divided into 4 broad sections, comprising: (a) standardized terms across all issuances; (b) representations and warranties; (c) commercial terms; (d) exceptions/deviation from model DTD. Although the model DTD can be deviated from, all issuers will be required to provide a key summary sheet as part of the offer documents of the issue.
This proposal aims to eliminate inconsistencies, bring uniformity and clarity while potentially reducing negotiation time. However, incorporating unique or complex debt structures in the model DTD could prove to be a challenge.
Consultation Paper on EBP and RFQ Platforms
The Request for Quote (‘RFQ’) platform, launched in 2020, is another key mechanism introduced by SEBI to regulate and enhance the transparency of India’s corporate bond market which was designed to transition secondary bond trading from an opaque, over-the-counter market to a more structured, electronic trading system. This consultation paper proposes several amendments to the EBP platform and the RFQ platform, inter alia seeking to expand their scope and modify allocation mechanisms.
1. Reduction in Settlement and Listing Timelines
SEBI has proposed the reduction of the settlement timeline to T+1 for private placements conducted through the EBP platform and listing timelines to T+2. Under the current system, issuers can choose between T+1 and T+2 settlement cycles, while the listing of securities occurs within T+3 days. By shortening these timeframes, SEBI seeks to accelerate post-issuance processes.
Faster settlement and listing will improve efficiency and increase the attractiveness of corporate bonds. However, issuers and intermediaries may face operational challenges in meeting shorter timelines, including faster fund mobilization and documentation processes. Clearing corporations, depositories, and custodians will also need to streamline processes to ensure seamless compliance.
2. Mandatory EBP for InvITs and REITs Above INR 1,000 Crore
SEBI has proposed to mandate the use of the EBP platform for private placements of units of Infrastructure Investment Trusts (‘InvITs’) and Real Estate Investment Trusts (‘REITs’) exceeding INR 1,000 crore. Currently, there is no specific regulatory requirement for InvITs and REITs to use the EBP platform, and they are issued through direct negotiations with institutional investors. The proposal aims to introduce a transparent book-building process, similar to that used for corporate bonds.
This measure attempts to integrate InvITs and REITs into a structured price discovery mechanism. However, given that InvITs and REITs have distinct characteristics, forcing them into the corporate bond issuance framework may create operational challenges for issuers and investors. Institutional investors may benefit from enhanced pricing transparency, but market intermediaries handling structured debt may need to adapt to the new platform requirements, possibly increasing transaction costs.
3. Changes to RFQ Platform – Standardizing Yield-to-Price Computation and disclosure of cash flow schedule
SEBI proposes to standardize the yield-to-price computation mechanism on the Request for Quote (RFQ) platform, aligning it with the methodology used for government securities (G-Secs). Currently, in the corporate bond market, the ‘day count convention’ is followed and payment dates for interest and redemption are adjusted if they fall on holidays, which complicates yield calculations. The proposed change would fix the cash flow dates irrespective of holidays, similar to the G-Sec framework, making yield computations more predictable.
SEBI has also proposed to introduce a format for disclosure of cash flow schedule for payment of interest, dividend or redemption in the centralized corporate bond database at the time of activation of ISIN.
In conclusion, while most of the changes proposed by SEBI may have a positive impact on the Indian corporate bond market, given the statement by SEBI’s current chairperson, Mr. Tuhin Kanta Pandey, on the need for “optimum regulation” and for “regulatory simplification”, the form and shape in which SEBI brings about the changes under these consultation papers remains to be seen.
Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.