Securities and Exchange Board of India (SEBI), with the
objectives of enhancing transparency, improving price discovery,
reducing the time taken for private placement of debt securities
and improving liquidity in the corporate bond market as opposed to
the "over the telephone" market, has attempted to lay
down the groundwork to modernise and simplify the issue procedure
for listed private placement of debt securities by introducing the
electronic book building process for debt securities on 21 April
2016 (EBM Circular). The electronic book building
mechanism for listed privately placed securities will be effective
from 1 July 2016.
Applicability based on Issue Size and Number of Investors
The electronic book mechanism will be mandatory for all listed
private placements of debt securities which: (a) have an issue size
exceeding `5,000 million; and (b) seek listing on a recognised
stock exchange in India. The issue size of `5,000 million is
inclusive of a green shoe option i.e., an issue size of `4,000
million with a green shoe of `1,500 million need to comply with the
The electronic book building mechanism shall not be mandatory
for: (a) fixed rate issuances which are targeted at a single
investor (other than an arranger acting as an underwriter)
irrespective of the issue size; and (b) issue size of less than
For listed private placements of debentures below `5,000
million, additional disclosure requirements have been introduced
i.e., the issuer has to disclose the coupon, yield, amount raised,
number and category of investors in the prescribed format (not made
available yet) to the electronic book provider (i.e., a recognised
stock exchange) or another body notified by SEBI.
As on date, the requirements of the EBM Circular will not apply
to unlisted private placement of debt securities.
Participants involved and their roles in Electronic Book
Building for Debt Securities
Roles and responsibilities
A recognised stock
exchange after obtaining approval from SEBI to act as EBP.
Complete KYC for the QIBs, before allowing such QIBs to enter
their bids, either by utilizing existing KYCs from KYC Registered
Agencies (KRAs) registered with SEBI or undertaking a fresh
Provide an accurate, timely and secured bidding platform,
operational procedure and timeline for bidding and address all
investor grievances which may arise from the bidding process.
Includes any company,
public sector undertaking or statutory corporation which makes or
proposes to make an issue of debt securities in accordance with the
SEBI (Issue and Listing of Debt Securities) Regulations 2008, as
amended, or which has its securities listed on a recognized stock
exchange or which seeks to list its debt securities on a recognized
To ensure compliance with all applicable laws for placement of
debt securities, include the following disclosures in the private
placement memorandum (PPM):
minimum issue size, inclusive of green shoe option;
details of green shoe option including reasons for the
retention of excess amount; and
may specify upper ceiling limit on the coupon.
To enter into an agreement with the EBP.
Sub-Arranger (Category I Participants)
merchant bankers, RBI registered primary dealers or any other
registered intermediaries as notified by SEBI.
Sub-Arranger is any broker registered with SEBI and appointed by an
Can enter bids on proprietary basis or on behalf of other
investors such as high net worth individuals (HNIs), institutional
Complete Know Your Client (KYC) of the non-institutional
investors, before allowing them to make bids, either by utilizing
existing KYCs from KRAs registered with SEBI or undertaking a fresh
Uploading the bids, for all non-institutional investors along
with their own proprietary bids, if any, on the EBPs platform.
In case of non-QIBs investing into debt securities, an arranger
will become necessary in order to undertake KYC and upload
includes a qualified institutional buyer (QIB) or family trust or
systematically important NBFCs registered with Reserve Bank of
India or intermediaries registered with SEBI, all with net-worth of
more than five thousand million rupees, as per the last audited
financial statements (Category II Participants).
Non-Institutional Investors include HNIs, non-QIBs, individuals in
each case only those persons eligible to invest in such debt
Institutional Investors or Category II Participants and are
permitted to enter bids on either a proprietary basis or through an
Arranger or a Sub-Arranger.
For NIIs bids can be entered only through
Arrangers/Sub-Arrangers, thereby making the appointment of an
Procedure for Electronic Book Building
Participants enrol with the EBP and only eligible bidders
enrolled with the EBP will be allowed to bid.
EBP shall provide details of the enrolled participants to the
Issuer, which in turn shall enable the Issuer to file the Form PAS
5, required under the rules notified under Companies Act,
Other than QIBs, all the enrolled participants are required to
pre-register themselves before being allowed to access the PPM or
other information with respect to the issue.
In case the number of pre-registered bidders exceeds 200 in a
year, the eligible bidders shall be determined by draw of lots or
first come first served basis by the EBP, in consultation with the
Issuer. This is to ensure that the limit of 200 persons in
accordance with Companies Act, 2013 is not exceeded.
Only the enrolled eligible participants shall have access to
the PPM and to the bidding portal of the EBP.
The bidding time window (bidding time, cooling period,
renegotiation window etc.) shall be decided by the Issuer in
consultation with the EBP, which shall be disclosed, in advance, to
the bidders by the EBP.
The EBP is required to lay down the operational procedure
including steps for uploading PPM, list of eligible participants
and timelines for each event.
The bidding period shall be decided by the Issuer in
consultation with the EBP.
The bids shall be made by entering the amount of bid in Rupees
and coupon/yield in basis points (bps). A single bidder can submit
Upon bidding an acknowledgment number will be generated, for
each bid, by the EBP.
Post closure of bidding period, the EBP shall provide all the
bids to the Issuer. Issuer can accept or reject the bids if it
agrees to the yield so discovered.
The Issuer is required to inform the depositories of the bids
that it accepts, before making allotment to the successful
The EBP shall at the end of the bidding time window, disclose
the bid details viz. aggregate volume data, including yield, amount
including the amount of oversubscription, total bids received,
rating(s), category of investor, etc., on an anonymous basis, to
avoid any speculation at the end of the bidding time window.
Though not specified in the EBM Circular, we infer that based
on the bids received, the Issuer will finalise the basis of
allotment, post which the procedure for collection of the amount
shall be initiated.
Thereafter the Board shall allot the securities and take
appropriate steps as may be required under various applicable
EBP shall upload allotment data on its website to make the
information available to public.
With the goal of developing the debt market in India and
attracting more foreign investment in the listed debt segment, such
changes in the regulatory framework are a welcome move.
However, with the increase in requirements such as appointment
of an Arranger, employing services of the EBP, and the KYC
obligations, the issue process is likely to increase the cost in
terms of arranger's fee, EBP fee and KRA fee consequentially
increasing the cost of borrowing.
Certain aspects, such as the detailed operational procedures to
be laid down by the stock exchanges, the period of the bidding
process, potential issues of pre-registration of participants to a
maximum of 200 per year, leave scope for fine-tuning the
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views/position of Khaitan & Co but remain solely those of the
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