How to Issue Debt Securities Through Private Placement Under SEBI's Regulatory Framework for Listed Issuers

Private placement of debt securities is one of the most widely used methods for listed companies to raise capital without the regulatory burden and public scrutiny associated with a public offering. Under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations), the process involves a structured sequence of approvals, disclosures, and compliance steps. This guide walks through the complete process, from board approval to listing, with practical notes on each stage.

Step 1: Board and Shareholder Approval

The first step is obtaining the necessary corporate authorizations. The board of directors must pass a resolution approving the proposed private placement, specifying the aggregate amount to be raised, the type of debt securities (non-convertible debentures, bonds, or non-convertible redeemable preference shares), and the broad terms of the issue.

Under Section 42 of the Companies Act, 2013, read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, a special resolution of shareholders is required if the number of private placement offers in a financial year exceeds the prescribed limits. For debt securities, however, most listed issuers operate under a shelf resolution that authorizes the board or a committee to issue debt securities up to a specified aggregate limit within a financial year.

In practice, most frequent issuers (such as NBFCs, housing finance companies, and infrastructure lenders) pass a single annual special resolution authorizing debt issuance up to the borrowing limit approved by shareholders under Section 180(1)(c) of the Companies Act. This avoids the need for a separate resolution for each tranche.

Step 2: Appoint a Merchant Banker

Under the NCS Regulations, every private placement of debt securities by a listed entity requires the appointment of a SEBI-registered merchant banker. The merchant banker is responsible for conducting due diligence on the issuer and the issue, preparing the placement memorandum, and ensuring compliance with the NCS Regulations and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR).

The merchant banker's due diligence covers the issuer's financial statements, material litigations, regulatory compliance, and the terms of the debt securities being issued. The merchant banker also verifies that the issuer has obtained all necessary approvals and that the placement memorandum contains all material disclosures.

In practice, the cost of merchant banker appointment can be significant for frequent issuers raising small amounts. SEBI's consultation paper dated August 27, 2026, proposes exempting eligible issuers from this requirement for small-value debt issued at Rs 10,000 face value, subject to conditions including a AA- minimum credit rating, no defaults in three years, and senior secured status. If adopted, this would reduce the compliance cost for qualifying issuers.

Step 3: Obtain Credit Rating

Every privately placed debt security must be rated by at least one SEBI-registered credit rating agency (CRA) before the date of issuance. The rating must be from a CRA registered under the SEBI (Credit Rating Agencies) Regulations, 1999. The major CRAs in India are CRISIL, ICRA, CARE, India Ratings, and Acuite.

The rating letter must specify the instrument type, the aggregate amount, and the tenor. If the debt security is issued in multiple tranches under a shelf placement, the rating must cover the entire shelf amount. The rating must be disclosed in the placement memorandum and in the listing application to the stock exchange.

In practice, the credit rating process typically takes 2 to 4 weeks for an initial rating and 1 to 2 weeks for a revalidation or enhancement of an existing rating. Issuers with existing rated programmes can often obtain a rating letter for a new tranche within a few days, as the CRA has already completed its fundamental analysis.

Step 4: Prepare the Placement Memorandum

The placement memorandum (also called the private placement offer letter) is the primary disclosure document for the private placement. Under Schedule I of the NCS Regulations, the placement memorandum must contain specified disclosures including the issuer's financial statements, details of the debt securities, the credit rating, risk factors, and the terms of the issue.

The placement memorandum must be filed with the stock exchange where the debt securities will be listed, and with the Registrar of Companies (ROC) within 30 days of the allotment. The Supreme Court in Sahara India Real Estate Corporation Ltd. v. SEBI, (2012) 10 SCC 603, held that private placement and public offering are distinct capital-raising mechanisms, and that the regulatory framework for each must be strictly followed.

Step 5: Identify and Approach Investors

A private placement can be made to a maximum of 200 persons per financial year per type of security, excluding qualified institutional buyers (QIBs). QIBs include mutual funds, insurance companies, banks, pension funds, and foreign portfolio investors. In practice, most large debt private placements are subscribed entirely by QIBs, meaning the 200-person limit is rarely a binding constraint.

The issuer (or the merchant banker on its behalf) circulates the placement memorandum to identified investors along with a private placement application form. Investors submit their applications with the subscription amount. The issuer must not make any public advertisement or solicitation in connection with the private placement.

Step 6: Allotment and Demat Credit

After receiving the subscription money, the issuer allots the debt securities to the subscribers. The allotment must be completed within 60 days of receipt of the application money. If the allotment is not completed within this period, the application money must be refunded with interest at 12% per annum.

All privately placed debt securities by listed issuers must be issued in dematerialized form. The issuer must have an ISIN allotted for the debt security and must credit the securities to the demat accounts of the allottees through the depositories (NSDL and CDSL). The issuer must file a return of allotment in Form PAS-3 with the ROC within 15 days of the allotment.

Step 7: Listing on the Stock Exchange

Under Regulation 23 of the NCS Regulations, all non-convertible securities issued through private placement by a listed entity must be listed on a recognized stock exchange. The issuer must apply for listing within the timelines prescribed by the stock exchange, typically within 15 trading days of the allotment.

The listing application must include the placement memorandum, the credit rating letter, the board and shareholder resolutions, the merchant banker's due diligence certificate, and the debenture trust deed (if debentures are being issued). The stock exchange reviews the application and grants listing approval, after which the debt securities are available for trading on the exchange's debt segment.

Step 8: Appoint a Debenture Trustee (If Applicable)

If the debt securities are non-convertible debentures (NCDs), the issuer must appoint a SEBI-registered debenture trustee before the issue opens. The debenture trustee is responsible for protecting the interests of debenture holders and ensuring that the issuer complies with the terms of the debenture trust deed. The trustee must be independent of the issuer and must not have any material conflict of interest.

In practice, the debenture trustee plays a critical role in the event of a default. The trustee has the power to enforce the security created in favour of the debenture holders, call meetings of debenture holders, and take legal action against the issuer on behalf of the holders. The SEBI (Debenture Trustees) Regulations, 1993, prescribe the qualifications, duties, and obligations of debenture trustees.

Step 9: Create Security (If Secured Debt)

If the debt securities are secured, the issuer must create a charge over the specified assets in favour of the debenture trustee (for debentures) or the security trustee (for bonds). The charge must be registered with the ROC within 30 days of creation under Section 77 of the Companies Act, 2013, and with the CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest).

The asset cover ratio must be maintained at the level specified in the debenture trust deed throughout the tenor of the debt securities. Under the LODR, any shortfall in the asset cover ratio must be disclosed to the stock exchange within one working day.

Step 10: Ongoing Compliance

After listing, the issuer must comply with ongoing disclosure and reporting obligations under the LODR. These include disclosure of any material events (such as a credit rating downgrade, a default, or a change in the terms of the debt securities), filing of half-yearly financial results, and submission of an annual compliance certificate to the stock exchange.

The issuer must also ensure timely payment of interest and principal on the due dates. Any default in payment must be disclosed to the stock exchange and to SEBI within one working day. Under Section 164(2)(b) of the Companies Act, the directors of a company that defaults on repayment of deposits or interest for a continuous period of one year are disqualified from being appointed as directors in any company.

Sources and References

• SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, Regulations 21-23

• Companies Act, 2013, Sections 42 (Private placement), 77 (Registration of charges), 164(2)(b) (Director disqualification), 180(1)(c) (Borrowing limits)

• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

• SEBI (Debenture Trustees) Regulations, 1993

• Sahara India Real Estate Corporation Ltd. v. SEBI, (2012) 10 SCC 603 (Private placement vs. public offering)

• SEBI Consultation Paper on Exemption from Merchant Banker Requirement for Small-Value Debt Private Placements, August 27, 2026

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.