INSUBCONTINENT EXCLUSIVE:
New Delhi: Sebi is considering steps to strengthen the framework for debenture trustees, including raising minimum net worth requirement for
registration of such entities and introducing e-voting provision to obtain consent of the unitholders.
The proposal is likely to be
discussed at Sebi's board meeting this week.
In order to secure the interests of debenture holders and to enable debenture trustees (DTs)
to perform their duties effectively and promptly in the interests of investors, Sebi had floated a public consultation paper on the proposed
changes in October.
The board of Sebi may make new framework for debenture trustees based on the public comments received on the
consultation paper.
The proposed changes include raising minimum net worth requirement for registration of debenture trustees to Rs 10 crore
from the current Rs 2 crore
Further, a three-year time would be given for attaining this networth requirement.
The new criteria will help in restricting registration of
debenture trustees to financially sound entities.
It has been 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.
Among others, it has been 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.
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 the case for strengthening the framework for DTs by Sebi.
Under the
proposal, 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
The additional interest should be specified in the Trust Deed and disclosed in the offer document, as per the proposal.
For creation of
charge on the security in favour of DT, a no-objection certificate needs to be obtained from other charge holders on a security before
opening of the issue, it added.
After intimation to stock exchanges, the issuer should furnish its financial results to its DT on the same
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.
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.
