Overview of NCD Intermediaries
NCD intermediaries comprise the entities and individuals involved in the comprehensive process of issuing non-convertible debentures (NCDs) and their subsequent listing. Each intermediary plays a specific role, crucial in facilitating the smooth offering of NCDs. Companies planning to issue NCDs must appoint these intermediaries to bridge the gap between themselves and potential investors, ensuring seamless execution of the process at every stage.
It's worth noting that not all intermediaries are mandatory for every issuance. Some, such as arrangers, guarantors, and underwriters, may not be needed for all issues. The specific involvement of each intermediary will be detailed in the offer document.
Role of Stock Exchanges
Stock exchanges act as a platform where securities, including stocks, bonds, and derivatives, are traded. They play a pivotal role in NCD IPOs, serving as gatekeepers by outlining guidelines for listing securities, as per SEBI regulations. When issuing NCDs, a company must select a designated stock exchange, either BSE or NSE, for the listing.
The chosen exchange is responsible for reviewing the draft offer document, which must be filed by the issuer, to invite public comments. NCDs can be listed on either one or both exchanges and traded in their debt segment.
Responsibilities of Regulatory Authorities
The Securities and Exchange Board of India (SEBI) serves as the primary regulatory body overseeing the securities market in India. Its chief aim is to protect investors and foster the securities market's orderly development and regulation.
SEBI formulates regulations for the public issuance of NCDs, detailing procedures, necessary disclosures, and information requirements to maintain transparency. These regulations are crucial for ensuring investors have access to all pertinent information before making investment decisions.
Functions of the Lead Manager
The lead manager, or merchant banker, oversees the entire NCD issuance process on behalf of the issuer. Key responsibilities include:
- Assisting in structuring the NCD terms, such as coupon rate and maturity.
- Conducting due diligence to ensure compliance and accuracy of company information.
- Preparing offer documents for the issue.
- Engaging with investors through roadshows and presentations to gauge interest and set pricing.
- Acting as an underwriter if needed, subscribing to any unsold NCDs.
- Coordinating allotment and facilitating listing on exchanges.
Duties of the Debenture Trustee
A debenture trustee protects the interests of debenture holders in an NCD issuance. As a representative, they ensure compliance with the bond agreement terms. Key responsibilities include:
- Safeguarding NCD holders' interests.
- Approving the trust deed and monitoring collateral in case of defaults.
- Communicating essential updates to holders regarding payments, maturity, or defaults.
Tasks of the Registrar
Registrars are appointed to manage records and administrative tasks related to NCD issuance. They oversee the allotment process and maintain a list of valid applications. Their roles include:
- Collecting application data from exchanges and banks.
- Facilitating NCD allotment to investors.
- Preparing the basis of allotment and handling refunds for non-allotments.
- Managing interest payments and redemption processes.
Statutory Auditors' Role
Statutory auditors ensure the issuer’s financial statements are accurate and reliable. Their duties include:
- Preparing interim financial statements per Indian Accounting Standards.
- Auditing annual financials, assessing compliance with standards like GAAP or IFRS.
- Examining internal controls and verifying financial data accuracy.
- Issuing an audit report with findings and opinions to stakeholders.
Bankers to the Issue/Sponsor Bank
Sponsor banks act as intermediaries between the stock exchange and investors, managing payment instructions for NCD subscriptions. Responsibilities include:
- Accepting IPO applications via ASBA/UPI.
- Managing application funds and notifying registrars of their status.
- Handling refunds and processing interest and maturity payments.
Credit Rating Agency's Role
Credit rating agencies (CRAs) evaluate the creditworthiness of NCD issuers. They assess default risks and assign ratings based on factors like financial health and market conditions. These ratings help investors gauge the safety of their investments.
Importance of Underwriters
Underwriters commit to subscribing to NCDs in case of under-subscription. While not always required, if an issue is underwritten, the offer document will specify the underwriter's details, obligations, and agreement terms.
Role of Guarantors
Guarantors ensure payment obligations in case of issuer default. While not common in public debt issues, they may be appointed for private placements. Guarantors, often related to the issuer, must provide an unconditional guarantee, detailed in the offer documents.
Functions of the Arranger
Arrangers, registered with SEBI or RBI, facilitate private placements by bidding on behalf of participants on the EBP platform. They manage KYC for non-QIB investors and disclose bid details, ensuring transparency.
Legal Advisor's Role
Legal advisors guide issuers through legal matters, assisting with due diligence, offer document drafting, and regulatory compliance. They act as capital market lawyers, helping issuers seek necessary approvals and clarifications.