Be a smart NCD issue investor; read the prospectus before investing
The public issue of non-convertible debentures (NCDs) in India has gained traction, with 15 companies raising over Rs 8,188 crores till August 10 in FY24.
This makes up for nearly 89% of the money raised in the whole of FY23, an analysis of Securities and Exchange Board of India data shows.
The rising appetite, both with investors and companies, for NCD issuances led SEBI to ensure that stakeholders are kept abreast of relevant disclosures that otherwise tend to get lost in the voluminous prospectus that companies publish for the public issue.
SEBI, on your side
The Securities and Exchange Board of India recently asked companies making a public issue of NCDs to publish an abridged prospectus for the public issue.
SEBI did this to ensure that disclosures are more transparent and that investors are aware of more meaningful and relevant sections of the prospectus.
NCDs are debentures which can't be converted into shares or equities and are used mainly by companies to raise long-term funds through a public issue.
It’s a significant move, augmenting transparency and simplifying information for fixed-income investors in India's lively securities market.
Let us see how it assures improved transparency and ease of information disclosure for India's fixed-income investors
A fresh new format for the abridged prospectus for public issues of NCDs and non-convertible redeemable preference shares will come into effect from October 1, 2023.
In a nutshell, an abridged prospectus is like the trailer to a film - it’s a shortened version of a company’s full prospectus, giving potential investors a quick lowdown about the company and its upcoming securities offering.
What’s included?
The salient features that must be included in the abridged prospectus for the NCD issue are:
- A brief description of the issue
- Risk factors
- Credit rating
- An overview of the business
- What the fund will be used for
- Material developments
- Top five important legal cases against the company
- Summary of all outstanding litigations, regulatory action
- Promoter details
- Details of the stock exchange where NCDs will be listed
Details available here https://www.sebi.gov.in/legal/circulars/sep-2023/new-format-of-abridged-prospectus-for-public-issues-of-non-convertible-debt-securities-and-or-non-convertible-redeemable-preference-shares_76430.html
Scan it if you want more details
SEBI has directed that the abridged prospectus must have a Quick Response Code, or QR Code, that will lead to the unabridged prospectus, should investors need more details.
Keeping Things Straight
The folks issuing and the merchant bankers have a hefty responsibility.
They have to ensure everything in the abridged prospectus is accurate and up to snuff, avoiding any misleads to investors.
What’s in it for fixed-income investors?
If NCDs are your game, SEBI's enhanced abridged prospectus is a game-changer.
It's laying out clearer, more accessible information, helping you make those sharp, informed investment calls.
By rolling out this new format, SEBI is showing they’re all about keeping India’s financial markets clear, fair, and friendly for investors.
It's a clear sign of SEBI’s commitment to a more transparent and friendly financial market in India.
This move could stoke investor confidence and increase participation in India’s fixed-income market.
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