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.
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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 created. 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 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.
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.