India Development News & Foreign Investment Opportunities

Reduced cost of capital to deepen bond market

DRR at 10% for unlisted companies

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DRR at 10% for unlisted companies

 

The Government has taken measure to reduce the cost of the capital raised by companies through issue of debentures which is expected to significantly deepen the Bond Market.

This comes as Corporate Affairs Ministry has amended the Companies (Share Capital & Debentures) Rules by removing Debenture Redemption Reserve (DRR) requirement for Listed Companies, NBFCs and HFCs.

The decision follows the Budget 2019-20 announcement by Finance and Corporate Affairs Minister Nirmala Sitharaman and the Government’s objectives of providing greater ‘Ease of Doing Business’ to companies in the country, as part of its 100 Days Action Plan.

Through these amendments, the provisions relating to creation of DRR have been revised.

The objective is:

To Remove the requirement for creation of a DRR of 25% of the value of outstanding debentures in respect of listed companies, NBFCs registered with RBI and for Housing Finance Companies registered with National Housing Bank (NHB) both for public issue as well as private placements;

Reduction in DRR for unlisted companies from the present level of 25% to 10% of the outstanding debentures.

Hitherto, listed companies had to create a DRR for both Public Issue as well as Private Placement of Debentures, while NBFCs & HFCs had to create DRR only when they opted for Public Issue of Debentures.

It is aimed at creating a level-playing field between NBFCs, HFCs and listed companies on the one hand and Banking Companies and All India Financial Institutions on the other, which are already exempted from DRR.

The rules, while retaining DRR requirement in India for unlisted companies, provide for reduction from a DRR of 25% to a DRR of 10% for such companies, so as to safeguard interests of investors. fiinews.com

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