NEW DELHI: To secure the interests of debenture holders of listed debt issues, Sebi Wednesday proposed a slew of measures to strengthen the regulatory framework for debenture trustees, including raising minimum net worth requirement for registration of such entities to Rs 10 crore from the current Rs 2 crore.
Issuing a consultation paper, the regulator has suggested three years time period for attaining the networth requirement.
The new criteria will help in restricting registration of debenture trustees (DTs) to financially sound entities.
Further, the regulator proposed that there should be no requirement of calling for a meeting of debenture holders in the event of default by the issuer in case of public issues.
The DT can directly enforce the security without obtaining any consent from the debenture holders.
A debenture trustee, in market parlance, is a person or entity that serves as the holder of debenture stock for the benefit of another party.
Debenture is a debt instrument that is not secured by physical assets or collateral.
According to Sebi, there have been cases of delay in enforcing the security in the event of default, which is detrimental to the interests of the investors.
Data received from the Trustee Association of India (TAI) indicates that DTs have been able to enforce the security successfully in around 35 per cent of the issues that have defaulted in the past five financial years, thereby building the case for strengthening the framework for DTs by Sebi.
The Securities and Exchange Board of India (Sebi) has proposed various measures and sought comments from the public till November 16 on the same.
The final regulation will be put in place after taking into consideration views of all the stakeholders.
The proposals are expected to enable DTs to perform their duties in the interest of the investors more effectively and promptly and also aid in taking a step forward towards creating and sustaining a vibrant market for debt securities.
Among others, Sebi proposed that DTs should disclose the nature of compensation arrangements with their clients on their websites.
The disclosure include the minimum fee that a DT will charge and factors determining the fee charged.
Also, e-voting has been proposed as a valid option for obtaining the consent of debenture holders wherever applicable.
DTs should display on their website the details of interest/ redemption due to the debenture holders in respect of all issues during a financial year within five working days of start of financial year.
Besides, status of payment should be updated in the calendar by the DT not later than one day from the due date of payment.
In case an issuer is unable to create the charge on security in favour of DT within the timelines specified, the issuer should pay additional interest to the debenture holders for the period till such charge is created.
The additional interest should be specified in the Trust Deed and disclosed in the offer document, as per the draft papers.
For the creation of charge on the security in favour of DT, the regulator suggested that no-objection certificate will be obtained from other charge holders on a security before the opening of the issue, it added.
After intimation to stock exchanges, the issuer should furnish its financial results to its DT on the same day.
The issuer should have seven working days from the date of submission of financial results to the bourses to file the certificate from the debenture trustee.
According to Sebi, Registrars to an Issue and Share Transfer Agent (RTA) or issuers should forward the list of debenture holders to the DT at the time of allotment and thereafter on a monthly basis on the first working day of every next month.