Sebi tightens disclosure norms on loan defaults for listed companies

Markets regulator Sebi on Thursday asked listed companies to disclose any loan default within 24 hours of any failure to repay principal or interest amount to banks or financial institutions beyond 30 days. The decision is aimed at addressing the gaps in the availability of information to investors, the Securities and Exchange Board of India (Sebi) said in a circular.

The move comes just a day after the board of Sebi approved a decision in this regard. "To begin with, listed entities shall make disclosure of any default on loans, including revolving facilities like cash credit, from banks / financial institutions which continues beyond 30 days. Such disclosure shall be made promptly, but not later than 24 hours from the 30th day of such default," the regulator said.

In case of unlisted debt securities such as Non-Convertible Debentures (NCDs) and Non-Convertible Redeemable Preference Shares (NCRPS), the disclosure shall be made within 24 hours from the occurrence of the default. This would be applicable from January 1, 2020.

There have been several instances of huge loan defaults by corporates, including in cases like Infrastructure Leasing & Financial Services Ltd (IL&FS). In many cases, the disclosure about loan defaults were very late and share prices fell sharply. Currently, Sebi LODR (Listing Obligations and Disclosure Requirements) Regulations require disclosure of material events by listed entities to stock exchanges.

Under the norms, specific disclosures are required in certain matters such as delay or default in payment of interest or principal on debt securities such as NCDs and NCRPS. However, similar disclosures are generally not made by listed entities with respect to loans from banks and financial institutions. The regulator noted that corporates in India are even today primarily reliant on loans from the banking sector. Many banks and financial institutions are presently under considerable stress on account of large loans to the corporate sector turning into stressed assets or non-performing assets (NPAs). Some companies have also been taken up for initiation of insolvency proceedings.

In order to address this critical gap in the availability of information to the investor, the regulator has asked listed companies to comply with the new disclosure norms. "The disclosures shall be made to the stock exchanges when the entity has defaulted in payment of interest / instalment obligations on loans, including revolving facilities like cash credit, from banks / financial institutions and unlisted debt securities," Sebi said.

Further, the regulator has defined default as non-payment of the interest or principal amount in full on the date when the debt has become due and payable (pre-agreed payment date). In addition, the markets watchdog has come out with a disclosure format that needs to be followed by listed companies.

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