On November 12, 2020, the Securities and Exchange Board of India (“SEBI”) issued a circular on monitoring and disclosures by debenture trustee(s) (“DT(s)”) (“Circular”). This Circular is applicable to (i) all listed entities who have listed their debt securities or issuers who propose to list their debt securities; (ii) all recognised stock exchanges; and (iii) all DTs registered with SEBI.
In order for DTs to discharge their obligations in respect of listed debt securities, the DTs will be required to undertake independent periodical assessments of the compliance with covenants/ terms of issue of listed debt securities, including in respect of the security created.
A) Monitoring of ‘security created’/ ‘assets on which charge is created’
1. SEBI had by its circular, dated November 3, 2020, prescribed the manner in which DTs are required to carry out their due diligence for creation of security at the time of issuance of debt securities as well as on a continuous basis.
2. Further, DTs will be required to carry out periodical monitoring in the following manner:
a) DTs will be required to incorporate the terms and conditions of periodical monitoring in the debenture trust deed wherein the listed entity will be required to provide relevant information/ documents, to enable the DTs to submit their reports/ certificates to the stock exchanges as per the format annexed to the Circular and within the timelines mentioned below:
Reports/ certificates |
Periodicity |
Asset cover certificate |
Quarterly basis within 60 days from the end of each quarter. |
Statement of value of pledged securities |
|
Statement of value for debt service reserve account or any other form of security offered (secured by way of a personal guarantee) |
|
Net worth certificate of the guarantor |
Half yearly basis within 60 days from the end of each half-year. |
Financials/ value of guarantor prepared on the basis of audited financial statements etc. of the guarantor (secured by way of a corporate guarantee) |
Annual basis within 75 days from the end of each financial year. |
Valuation report and title search report for the immovable/ movable assets, as applicable |
b) With respect to existing debt securities, listed entities and DTs will be required to enter into supplemental/ amended debenture trust deeds within 120 (one hundred twenty) days from the date of the Circular, incorporating the changes into the debenture trust deed.
c) In case a listed entity has more than 1 (one) DT, the DTs may choose a common agency for preparation of asset cover certificates.
B) Action to be taken in case of breach of covenants or terms of issue
In case of breach of covenants or terms of the issue by the listed entity, the DT will be required to take steps as outlined in paragraph 6.1 (notice of default to be sent to the investors) and 6.3 (convening of meeting within 30 (thirty) days of an event of default) of the SEBI circular dated October 13, 2020, dealing with ‘Standardisation of procedure to be followed by Debenture Trustee(s)in case of ‘Default’ by Issuers of listed debt securities’ and thereafter take necessary actions as decided in the meeting of holders of debt securities in this regard.
C) Disclosure on website by the DT
The DT will be required to make the following disclosures on their websites as per the format annexed to the Circular and within the timelines mentioned below:
Disclosures |
Periodicity |
Revision in credit ratings |
Continuous basis within T+1 day from receipt of information |
Status of payment of interest/ principal by the listed entity |
|
Monitoring of asset cover certificate and quarterly compliance report of the listed entity |
Quarterly basis within 60 days from the end of each quarter. |
Details of the debenture issues handled by the DT and their status |
Half yearly basis within 60 days from the end of each half-year. |
Status of information regarding breach of covenants/ terms of the issue, if any action taken by DT |
|
Complaints received by DT including default cases |
|
Status regarding maintenance of accounts maintained under supervision of the DT |
Annual basis within 75 days from the end of each financial year. |
Status of information regarding any default by the listed entity and action taken by the DT |
|
Monitoring of utilisation certificate |
D) Reporting of regulatory compliance
The DTs will be required to furnish periodical reports to SEBI as per the format annexed to the Circular and within the timelines mentioned below:
Reports |
Periodicity |
Half yearly compliance report |
Half yearly basis within 30 days from the end of each half-year. |
Details of other activities carried out by the DTs including type of activity, description of activities etc. |
|
Risk based supervision report |
The provisions of the Circular will come into force with effect from the quarter ended December 31, 2020.
Please find a copy of the Circular here.
Contributed by Aastha (Partner) and Radhika Kothari (Associate).
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