NEW DELHI :
Amid pounding of share prices due to loan defaults and subsequent actions by lenders against borrower companies, all listed companies have been asked to promptly disclose to the exchanges all "material developments" relating to the defaults including about inter-creditor agreements.
The direction has been issued by the two leading stock exchanges, BSE and NSE, in consultation with the capital market regulator, Sebi (Securities Exchange Board of India).
Besides, the two exchanges have also announced additional surveillance measures for companies wherein creditors of a listed company may have or are in process of taking action as per the Insolvency and Bankruptcy Code (IBC) or Inter Creditor Agreement (ICA) resolution process.
In separate circulars, the two exchanges said developments related to the ICA are likely to have significant impact on prices of the securities of the listed entities whose assets have been deemed to be 'stressed' on account of default or delay of interest/principal payments. Therefore, developments such as signing of the ICA by lenders of a listed company is deemed to be "material" as it is likely to have significant impact on the ownership and governance of the company, the exchanges said, citing Sebi's disclosure regulations.
With a view to provide for early recognition, reporting and time-bound resolution of stressed assets, the RBI in June had issued certain directions to lenders, including banks, financial institutions, and systematically important NBFCs, as part of its Prudential Framework for Resolution of Stressed Assets Directions, 2019.
The framework provides for lenders to take a prima facie review of defaulting borrowers within 30 days of default. During this review period, the lenders may decide on a resolution strategy which may include putting in place a resolution plan or alternatively initiate legal proceedings under the IBC.
In cases where a resolution plan is to be implemented, all lenders can enter into an ICA during this review period to provide for ground rules for finalisation and implementation of the resolution plan in respect of borrowers with credit facilities from more than one lender.
Taking these developments into account, the exchanges have now asked all listed companies to promptly disclose all material developments pertaining to any default and about the ICA.
Besides, all entities who get confidential information in course of developments pertaining to default and/or ICA, will need to maintain confidentiality of such information, until the same is disclosed to the exchanges for public dissemination. These would include companies, lenders and any other entities who may have access to unpublished price sensitive information.
However, these entities would need to ensure a strong and robust framework to maintain confidentiality of the unpublished price sensitive information and ensure that persons (including lenders and any other entities who may have access to UPSI) are put through necessary restrictions as required under the Sebi (Prohibition of Insider Trading) Regulations.
Besides, listed companies on their own would have to promptly confirm or deny (as the case may be) and clarify to stock exchanges regarding any rumours or news on developments pertaining to default and/or ICA.
The exchanges have asked listed companies to take note of the circular and comply accordingly.
Detailing the criteria for short-listing of securities for action and the surveillance action, the exchanges said additional surveillance would be applicable in case of a closing share price variation of more than 25% in five consecutive trading days, post disclosure of default.
The surveillance action in this case would be applicable margin rate of 40% or existing margin, whichever is higher, subject to maximum rate of margin capped at 100% from T+3 day for a minimum period of 15 days.
Post disclosure of ICA also, the additional surveillance action would be applicable in case of closing price variation of 25% in five consecutive trading days. However, the applicable margin rate for such stocks would be 100% from T+3 day for all clients for a minimum period of 15 days. The securities would exit from these surveillance measures in case the closing share price variation in the last 5 trading days is less than or equal to 25% as on review date.