SEBI to raise limit for identifying HVDLE from Rs.1,000 crore to Rs.5,000 crore

SEBI to raise limit for identifying HVDLE from Rs.1,000 crore to Rs.5,000 crore

Seeks public comments on several proposals by 17 November

The Securities and Exchange Board of India (SEBI) proposes to reduce the compliance burden of companies with large debts by raising the threshold for identifying High Value Debt Listed Entities (HVDLEs) to Rs.5,000 crore from the current Rs.1,000 crore.

The move would reduce the number of HVDLE entities from 137 to 48 and ease business prospects.

Introduced in September 2021, corporate governance norms for HVDLEs were on a comply-or-explain basis until 31 March 2025. Mandatory from April 2025, these applied to entities with listed outstanding non-convertible debt securities of Rs.1,000 crore and above.

However, several market participants approached the market regulator seeking a higher threshold for classification.

On being designated as an HVDLE, a company must comply with governance standards akin to equity-listed firms, including the submission of quarterly governance reports, annual secretarial compliance reports, and adherence to board composition rules.

But the disgruntled industry representatives held that meeting the requirements increased the costs substantially.

They submitted that the need for additional independent directors, committee-specific experts, and higher legal, secretarial, and audit expenses added to the burden, especially for NBFCs and frequent issuers, who primarily raise funds through private placements. They explained that the Rs.1,000 crore limit was unfairly low.

Thus, SEBI’s consultation paper read: “It has been suggested to increase the threshold for identification for HVDLEs from Rs.1,000 crore to Rs.5,000 crore."

Meanwhile, the market watchdog has also proposed aligning corporate governance norms for HVDLEs with those applicable to equity-listed companies.

The suggested changes include a revision in financial terminology, replacing the term ‘income’ with ‘turnover’ in defining material subsidiaries to maintain consistency with similar amendments made for equity-listed entities earlier.

SEBI has also recommended shareholders' special approval before a director crosses the age of 75. It proposed excluding the time taken for regulatory or statutory approvals from the timeline for obtaining shareholder consent for the appointment or reappointment of directors. It suggested exempting the requirement of shareholder approval for nominee directors appointed by financial regulators, courts, or tribunals.

Additionally, a three-month window to fill vacancies in key board committees such as the audit committee, nomination and remuneration committee, stakeholders’ relationship committee, and risk management committee was initiated to strengthen the governance model. SEBI advised that recommendations made by boards to shareholders should include the board's justification.

An amendment requires that an independent director's vacancy be filled within three months, provided the entity continues to meet the minimum board composition requirements. The regulator also proposed exempting HVDLEs from seeking shareholder approval for intra-group asset transfers between subsidiaries.

Besides, companies emerging from the Corporate Insolvency Resolution Process (CIRP) would be given three months to fill key managerial positions, if they have at least one full-time official during the transition period.

Furthermore, SEBI advocated replacing the 21-day deadline for submitting periodic compliance reports with a more flexible provision. It justified that it would allow the Board to prescribe the feasible timelines.

The consultation paper also suggested removing the requirement for HVDLEs to disclose related party transactions with their periodic compliance reports. It reasoned that such details were already covered in half-yearly filings for equity-listed entities.

SEBI plans to introduce provisions for HVDLEs’ appointment, reappointment, removal, and disqualification of secretarial auditors. And on related party transactions, it mentioned the need for no-objection certificates (NOCs) from debenture trustees and holders.