In its consultation paper released on 27 October, the markets regulator has recommended increasing the threshold for companies that qualify as high-value debt listed entities while changing several norms for the board of directors of such companies.
Mint breaks down the proposed reforms and what it means for the Indian corporate bond market.
What are high-value debt listed entities?
High-value debt listed entities (HVDLEs) are companies or entities that have listed debt securities on a stock exchange and have an outstanding value of listed debt securities of ₹1000 crore or more.
This classification was introduced by Sebi to bring greater transparency, accountability, and governance standards to entities that raise large amounts of money from the public debt market.
Under Sebi’s framework, these entities are subject to enhanced compliance and disclosure requirements compared to regular debt-listed entities.
These include stricter corporate governance norms, detailed financial and operational disclosures, requirements for the composition of the board of directors (such as the inclusion of independent directors), and regular monitoring by debenture trustees. The objective is to safeguard the interests of investors who invest in such large-scale debt instruments.
What changes has Sebi suggested?
Sebi has suggested raising the threshold for identifying high-value debt listed entities (HVDLEs) from the current ₹1,000 crore to ₹5,000 crore.
The Indian markets regulator also proposed to replace the term “income” with “turnover” when defining material subsidiaries, bringing the terminology in line with the standards already applied to equity-listed entities.
To further strengthen governance, Sebi has suggested that shareholders’ special approval be required for the appointment or continuation of directors aged above 75 years, ensuring greater scrutiny and transparency in leadership decisions.
The regulator also proposed excluding the time required to obtain regulatory or statutory approvals from the deadline for securing shareholder consent for the appointment or reappointment of directors.
Sebi recommended exempting nominee directors—those appointed by financial regulators, courts, or tribunals—from the need for shareholder approval.
What does it mean for the corporate bond market?
Experts believe that smaller and mid-sized non-banking finance companies (NBFCs), previously highly regulated due to HVDLE norms, might find the listed bond market more accessible and cost-effective compared to borrowing from traditional banks.
Easier listing and reduced compliance are expected to encourage a high number of debt listings, potentially improving market liquidity for NBFC debt.
“The proposal opens clear opportunities for NBFCs to raise capital more efficiently. Reduced compliance burden could encourage more issuers to list debt, deepening market participation and transparency. Larger NBFCs, still under the HVDLE framework, stand to gain from greater regulatory clarity and streamlined disclosure norms,” said Vineet Agrawal, co-founder of Jiraaf, an online bond platform.
How will this improve the ease of doing business?
HVDLEs are required to follow stricter governance standards, such as maintaining a specific board composition and obtaining credit ratings more frequently—typically every six months.
If mid-sized NBFCs move out of this category, they will experience a notable decline in operational and administrative compliance expenses. This reduction will allow them to redirect financial resources and management focus toward their core lending and business operations.
“The change frees mid-sized issuers from governance norms designed for large corporations, improving borrowing flexibility and lowering operational costs,” said Agrawal.
Why are some experts cautious?
Despite the optimism, market participants are cautious of some investors who add special value to the heightened government disclosures mandated for HVDLEs. As these companies must follow stricter rules, investors see such entities as more trustworthy and better managed.
If a company’s outstanding debt falls below the HVDLE threshold and it moves out of this category, it no longer has to follow those enhanced governance rules. As a result, it might lose some of the “governance premium”, which is the extra confidence or positive perception that certain investors attach to these entities.
“The key challenge will be preserving investor confidence as smaller issuers face lighter obligations. Sebi must therefore balance simplification with transparency,” said Agrawal.
The general consensus is that Sebi’s recommendations will boost mid-tier NBFCs’ participation in the corporate bond market.
“We view this as a pivotal step towards a more resilient and liquid fixed income ecosystem in India, driving growth from the middle-up,” said Ranjit Jha, managing director and chief executive officer at investment and wealth management firm Rurash Financials.
