The Securities and Exchange Board of India vide its notification dated 3rd November 2020 has issued guidelines for creation of security for listed debt securities and ‘due diligence’ that needs to be carried out by debenture trustees.
As per the regulation, the Issuers are required to disclose a proposal to create security in offer document or private placement memorandum and schedule I of ILDS Regulations specifies that the type of security (movable, immovable, tangible, intangible etc.) and type of charge (pledge, hypothecation, mortgage etc.) shall be disclosed by the Issuer.
Regulation 13 of SEBI (Debenture Trustees) Regulations, Stipulates that the debenture trustee shall enter into a written agreement with the Issuer before the debenture trustee agrees to act as debenture trustee in respect of the said issue of debt securities.
Further, the debenture trustee is required to exercise independent due diligence and Regulation 15(1)(i) of DT Regulations places obligations on the debenture trustee to ensure that the assets of the Issuers are sufficient to discharge the interest and principal amount with respect to debt securities of the Issuers at all times.
Debenture trustee(s) by itself or through its advisers or experts shall independently carry out due diligence. The terms and conditions with respect to exercising due diligence shall also be included in the debenture trustee agreement.
The debenture trustee shall maintain records and documents pertaining to due diligence exercised for a minimum period of five years from the redemption of the debt securities.
The new framework will become effective from January 1, 2021.
