INDIA Law and Practice Contributed by: Divyanshu Pandey, Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
and loans, regulators also mandate a standard form of intercreditor agreement to be signed between various creditors to govern the enforce - ment of the security of a company in default. India has not seen a rise in first-out, last-out transactions, which are relatively rare. 3.3 Restrictions on Foreign Direct Lenders Foreign lenders can lend by way of either ECBs or investment in NCDs. Funding by private credit providers in the form of ECBs is not seen because India’s ECB framework restricts all-in cost pertaining to the ECB, end use and other prescribed matters. ECBs can be secured by the borrower’s domes - tic movable assets (including current assets), immovable assets and a pledge of shares held by the promoters in the borrowing company, and in the borrower’s domestic associate com - panies, subject to the satisfaction of certain cus - tomary conditions. NCDs can be secured by domestic assets. How - ever, security on the shares of an Indian entity that are held by an offshore entity requires prior approval from RBI. Inan acquisition finance transaction, the target (if it is a public company) will be restricted from providing any kind of security or support for its acquisition. 3.4 Use of Proceeds and Acquisition Financings As mentioned in 3.1 Common Structures , the proceeds of NCDs issued on a private place - ment basis can be used for any purpose. How - ever, where the investor is an FPI, the proceeds of an unlisted NCD cannot be used for real
estate business, capital markets or the purchase of land, so the proceeds of unlisted NCDs issued to an FPI cannot be used for acquisition financ - ing. There are no end use restrictions for an NCD that is listed on a recognised stock exchange in India. ECBs cannot be used for equity investments in India nor for financing acquisitions of shares but can be used for the acquisition of assets through a slump sale. However, private credit lenders do not typically use the ECB route to fund compa - nies in India. 3.5 Debt Buyback Call or put options can be provided pursuant to the terms of the NCDs. Such options will enable the issuer or NCD holder to redeem/buy back the NCDs subject to certain terms. Call or put options for listed NCDs can be exercised on completion of one year from the issuance of these NCDs. NCDs held by an FPI can be bought back subject to meeting minimum matu - rity requirements and the classification of such instruments as short-term instruments (where these instruments are subscribed under the general route). Therefore, they will be subjected to the lock-in requirements outlined in 3.1 Com- mon Structures (if these are subscribed under the VRR Route). 3.6 Recent Legal and Commercial Developments In addition to the Model DTD described in 1.9 Impending Regulation and Reform , SEBI has also stipulated that a listed entity whose debt securities are listed on a stock exchange shall list all non-convertible debt securities proposed to be issued on or after 1 January 2024 on the stock exchange(s). It has also brought in parity in respect of disclosures to be made in the case
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