SEBI has asked debenture trustees to enhance their disclosures for listed debt securities to protect investor interest. Debentures are not secured by physical assets or collateral and any fallout could lead to a crisis. Measures are being taken by SEBI due to debt market woes in the wake of lending by mutual funds to corporates.

A debenture trustee is one that serves as the holder of debenture stock for the benefit of another party. When a company is looking to raise capital, one method of accomplishing this is by issuing stock as a form of debt with the obligation to repay the debt at a specific interest rate. “The debenture trustee (shall) disclose the nature of compensation arrangement with its clients on their websites, including the minimum fee to be charged (in absolute terms or as a percentage of the issue size) and factors determining the same,” SEBI said in a circular.

Debenture trustees (DTs) will have to display on their websites the details of interest and redemption due on debenture holders in respect of all the issues during a financial year within five working days from the start of a financial year. They will also have to update such details for any new issues handled during the financial year within five days of closure of the issue.

‘Delayed payment’ remark

Also, status of payment against such issuers will have to be disclosed not later than one day from the due date. In case the payment is made with a delay by the issuer, DTs should update the calendar specifying the date of such payment, with a remark ‘delayed payment’.

SEBI has asked registrars to an issue and share transfer agent to forward details of debenture holders to the DT at the time of allotment and thereafter by the seventh working day of every next month in order to enable DTs to keep their records updated and to communicate with the debenture holders, especially in the event of default.

In privately placed issues, SEBI said, additional undertakings pertaining to default in payment and default in listing should be included in the agreement between the issuer and the investor.

In case of default, payment of interest and/or principal redemption on the due dates, an additional interest of minimum 2 per cent per annum over the coupon rate shall be payable by the issuer company for the defaulting period.

Similarly, for delay in listing of debt securities beyond 20 days from the date of allotment, the issuer firm needs to pay the investor at least 1 per cent annual interest over the coupon rate from the expiry of 30 days from the deemed date of allotment till the listing of such debt securities.

 

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