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First Notes - 4 October 2017

SEBI defers disclosures

SEBI defers disclosures of loan defaults from banks by listed entities


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The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) issued on 2 September 2015 required listed entities to disclose delay or default in payment of interest/principal on debt securities such as listed non-convertible debentures, foreign currency convertible bonds, listed non-convertible redeemable preference shares, etc. The Listing Regulations do not require similar disclosures to be provided in case of loans from banks and financial institutions.

In order to bridge this gap in the availability of information to investors and other stakeholders, the Securities and Exchange Board of India (SEBI) through its circular dated 4 August 2017 (the circular) required specified listed entities to provide disclosures to the stock exchanges in case of defaults in repayment of interest/instalment obligations on loans from banks and financial institutions, debt securities (including commercial paper), etc.

The circular prescribed the following timelines for disclosures:

Sr. no. Default Timing of disclosures
1. First instance of default A listed entity is required to make the disclosure of defaults within one working day from the date of default in the prescribed manner.
2. Outstanding amount under default as on the last day of the quarter A listed entity is required to report the outstanding amount under default within seven days from the end of the quarter.

Additionally, the listed entities were required to separately disclose information pertaining to defaults to the concerned credit rating agencies in a timely manner.

New development

While the above mentioned circular was to be effective from 1 October 2017, SEBI through a press release dated 29 September 2017 has decided to defer the implementation of the circular until further notice.

Our comments

The SEBI has not explained its intent for deferring the circular. The disclosure of default of loans taken from banks and financial institutions by listed entities is a material information which is likely to have a pervasive impact on the defaulting entity. Examples of impact could be on borrowing costs due to downgrade of rating of the borrower, impact on credibility and reputation of the defaulting entity, impact on the stock prices, etc.

It appears that SEBI may reconsider the requirements of the circular and issue revised guidelines in the near future.

To access the text of the earlier First Notes issued on 16 August 2017, please click here

To access the text of the SEBI press release, please click here.


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