Securities Exchange Board of India: Enhanced disclosure in case of listed debt securities

Securities and Exchange Board of India (SEBI) has on May 27, 2019 issued circular regarding Enhanced disclosure in case of listed debt securities.

The amendments to the existing legislative framework governing Debenture Trustees (DTs) were made with the purpose of further securing the interests of investors in listed debt securities, enhancing transparency and enabling DTs to perform their duties effectively and promptly, in accordance with public consultation.

The key stakeholders that can be identified, and would possibly be affected by virtue of the amendments made can be identified as follows:

  1. All issuers of debt securities
  2. All registered Debenture Trustees
  3. All registered RTAs/STAs acting on behalf of listed issuers
  4. All recognized Stock Exchanges

The guidelines that have been issued in furtherance of the amendments made and notified and their implications are as follows:

Revealing the compensation arrangements between clients and DTs on their websites: According to this issued guideline, there shall be a disclosure of nature of compensation arrangement between the DTs and their clients on their respective websites. Nature of the arrangement may include, minimum fee to be charged (in absolute terms or as a percentage of the issue size) and factors determining the same.

Display of Calendar of interest/redemptions, which are due to be paid in a particular financial year, on the websites of the DTs: According to this regulation, ISIN wise details of interest/redemption that are owed to debenture holders in respect of all issues during a financial year within 5 working days of start of financial year, shall be displayed on the on their website by the DTs. The same shall also be updated by the DTs for any new issues that arose and were handled during the financial year within 5 days of the closing of the issue. The guideline further provides that the status of payment, according to the ISIN number shall be updated by the DTs within a day of the due date, and in cases of delay in payment (by the issuer), there shall be an update made to that extent by DTs, specifying the date of such payment, with a mark titled ‘delayed payment’.

Furnishing of updated list of debenture holders to the DTs by issuers /registrars to an Issue and Share Transfer Agent (RTA): In accordance with the regulations, details of debenture holders shall be forwarded by issuers, at the time of allotment, thereafter by the seventh working day of every next month. The same is done with the purpose of enabling the DTs to update their records and effectively communicate with the debenture holders, especially in instances where events of default are triggered.

Additional covenants in cases involving issues that are private in nature: According to this guideline, in issues that are privately places, additional Covenants, shall be included as part of the details of issue. The same can be done as follows:
a. Default in Payment: An additional interest of at least 2% p.a. over the coupon rate shall be payable by the company in case of default in payment of interest and/or principal redemption. The same shall be payable for the defaulting period.
b. Delay in Listing: A penal interest of atleast 1% p.a. over the coupon rate shall be payable by a company if there is a delay in listing of the debt securities beyond 20 days from the deemed date of allotment. The interest shall be payable from the expiry of 30 days from the deemed date of allotment till the listing of such debt securities to the investor.

Click here to see the circular.