20May
SEBI Advisory on disclosure of material impact of COVID–19

The COVID–19 pandemic and the consequent lockdown restrictions imposed  by government has severally impacted businesses. SEBI Advisory says that it is important for a listed entity to ensure  that all available information  about the material impact of COVID-19 on the company and its operations is communicated  in a timely and cogent manner to its investors and stakeholders.

Keeping the above in view, Securities and Exchange Board of India (SEBI) vide its circular dated 20 May, 2020 1 has issued an advisory regarding disclosure of material impact of Covid-19 pandemic on listed entities. In this advisory, SEBI has provided an illustrative list of information that listed entities should provide to the Stock Exchanges.

Regulation 30(3) of SEBI Listing Obligations and Disclosure Requirements, Regulations, 2015 (LODR) already requires listed entities to make disclosure of events specified in Para B of Part A of Schedule  III of LODR,  based on  application of the  guidelines  for  materiality. Clause 6 of  Para  B  of  Part  A  of  Schedule  III  of  LODR specifies  events such as “Disruption  of operations  of any one or more units or division of the  listed  entity  due  to natural  calamity  (earthquake,  flood,  fire etc.),  force  majeure or events such as strikes,  lockouts etc.” that shall be disclosed upon application  of the guidelines  for materiality  referred in Regulation  30(4).

Further, SEBI vide Circular No. CIR/CFD/CMD/4/2015 dated September 9, 2015, had provided further guidance  to  the  listed  entities  on such  disclosures. Annexure-I to the  circular, specifically, provides the  details  to  be  disclosed  in  cases  of  disruptions  of  operations due to natural calamity,  force majeure  and other events.

SEBI has observed  that  many  listed  entities are making  disclosures  under LODR  Regulations, primarily intimating  shutdown of operations owing to the pandemic  and resultant  lockdowns. Some listed entities have provided  information  relating  to actions  taken towards  sanitation, safety etc. A very few number of entities have disclosed the financial impact.

While Listed entities around the world have been making disclosures regarding the impact  of  the pandemic,  including  that on  financial  condition  and  results of operations,  future  operations, capital  and  financial  resources,  liquidity,  assets,  internal  financial  control  over  financial reporting   and  demand   for  products/services   etc. Regulators have encouraged  timely  reporting as well  as  complete  and  accurate  disclosure of the impact, as far as possible.

According to SEBI, Listed entities in India should also ensure evaluation of  the impact of the CoVID-19  pandemic  on their business,  performance  and financials,  both qualitatively and  quantitatively,  to  the  extent  possible  and then disseminate  the  said information to the Stock Exchanges. Regulator has also provided the following illustrative list of information that listed entities should provide the stock exchanges:

  1. Impact of the CoVID-19 pandemic on the business;
  2. Ability  to  maintain  operations including  the  factories/units/office  spaces functioning and closed down;
  3. Schedule,  if any, for restarting  the operations;
  4. Steps taken to ensure smooth  functioning of operations;
  5. Estimation  of the future impact of CoVID-19  on its operations;
  6. Details of impact of CoVID-19 on listed entity’s- capital and financial resources, profitability, liquidity position, ability to service debt and other financing arrangements, assets, internal financial reporting and control, supply chain, demand for its products/services.
  7. Existing contracts/agreements where  non-fulfilment  of  the  obligations  by  any  party will have significant impact on the listed entity’s business;
  8. Other relevant material updates  about the listed entity’s business.

This circular states that the above is only illustrative not exhaustive. Further, listed entities should provide regular updates about the impact of COVID-19 on business, as and when there are material developments. Additionally, while submitting  financial  statements  under  Regulation  33 of  the LODR,  listed entities may specify/include   the  impact   of  the  CoVID-19   pandemic   on  their  financial statements, to the extent possible. Further, depending on circumstances peculiar to a listed entity and on account of  passage  of  time,  the  listed  entity  should also  revisit,  refresh,  or  update its previous disclosures to stock exchanges.

References
  1. Circular No.: SEBI/HO/CFD/CMD1/CIR/P/2020/84 dated May 20, 2020[↩]