These rules strengthen the role of debenture trustees by empowering them to conduct an independent inspection of assets on which a charge is being created
The Securities and Exchange Board of India (Sebi) on Tuesday night laid down fresh set of norms for increasing diligence on debt securities. Sebi prescribed enhanced disclosures in the trustee deed which would make it easier for debenture trustees to conduct due-diligence on encumbrances of underlying assets. Sebi had first approved these new norms in its board meeting on 30 September. These rules strengthen the role of debenture trustees by empowering them to conduct an independent inspection of assets on which a charge is being created. Debenture trustees represent the interest of bondholders and act as a liaison between them and the issuer company. Here are the key changes that will be applicable from 1 January:
The market regulator has made it mandatory for issuers to include details of assets—movable and immovable property—on which a charge encumbrance is being created. Also, they must disclose whether the underlying assets are encumbered elsewhere or are free from any other liability.
For encumbered assets
Details of existing charge over the assets, along with details of charge holders must be disclosed. No-objection from existing charge holders for further creation of charge or lien on the assets should be provided.
In case of personal guarantee, disclosures will need to be made about the guarantor and relationship with the issuer. Net worth and assets of guarantor and conditions for invocation of guarantee should be provided.
The debenture trustee should ensure that the assets of issuer are adequate to discharge/ cover principal and interest amount. To conduct diligence on debt securities independently or through help of advisers. They would also need to verify that the assets provided by issuer for creation of security are free from any encumbrance or that necessary permissions or consents has been obtained.
Disclosure of due-diligence report
The offer document of debt securities would need to carry this report by debenture trustees.
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