Enhanced guidelines for debenture trustees and listed issuer companies on security creation and initial due diligence

SEBI/HO/DDHS/DDHS_Div1/P/CIR/2022/106 · 2022-08-04 · Department of Debt and Hybrid Securities

Summary

This circular revises guidelines for debenture trustees and listed issuers regarding security creation, encumbrance, and initial due diligence. It mandates specific procedures for changing or creating security on already listed non-convertible debt securities, including the issuance of a No-Objection Certificate by the trustee. The document also outlines requirements for encumbrances via depository systems, due diligence certificates for shelf prospectuses, and the empanelment of external agencies.

Text

Before initiating due diligence, a DT and the listed entity shall enter into an amended debenture trust agreement to incorporate obligations arising out of provisions of para 4 to 7 of SEBI Circular No. SEBI/HO/MIRSD/CRADT/CIR/P/2020/218 dated November 03, 2020 and obligations prescribed in terms of SEBI Circular No. SEBI/ HO/ MIRSD/ CRADT/ CIR/ P/ 2020/230 dated November 12, 2020 and SEBI Circular No. SEBI/ HO/ MIRSD/ CRADT/ CIR/ P/ 2022/ 67 dated May 19, 2022 for continuous monitoring and any other stipulations of SEBI from time to time with respect to security creation, initial due diligence and continuous monitoring by DTs.

A DT shall carry out due diligence for change in security, creation of security/ additional security in the manner as prescribed in para 4 to para 7 of SEBI Circular dated November 03, 2020. Pursuant to the initial due diligence carried out as per para 4-7 of SEBI Circular dated November 03, 2020, the DT shall issue a no-objection certificate (NOC) to issuer company for going ahead with proposed change in the structure/ creation of security.

Thereafter, the issuer company shall create the proposed security and the charge in favour of DT and the same shall be registered with the sub-registrar, Registrar of Companies, CERSAI, Depository etc., as applicable, within 30 days of creation of such charge. In case the charge is not registered anywhere or is not independently verifiable, then the same shall be considered as a breach of the covenants/ terms of the issue by the Issuer.

Pursuant to the creation and registration of charge, the issuer company and DT shall enter into a supplemental/ amended debenture trust deed including all the terms and conditions arising out of the due diligence carried out by the DT as well as of the security created by Issuer Company.

The issuer company, pursuant to execution of supplemental/ amended debenture trust deed, shall submit the following to the Depositories and Stock Exchanges: i. NOC by DT for change in security or creation of security. ii. Executed supplemental/ amended debenture trust deed; iii. An undertaking from the DT that the security has been created and registered. iv. Other documents/ consents required to be submitted to Stock Exchanges and Depositories in terms of Regulation 59 of LODR Regulations, circulars issued thereunder and bye - laws of Stock Exchanges and Depository, as applicable.

The Depository shall assign a new ISIN to the non-convertible debt securities pursuant to submission of documents mentioned above only and shall share the information with respect to change in ISIN of debt securities, with the recognized Stock Exchanges.

Creation of encumbrance on the securities for securing the non-convertible debt securities shall be through the depository system only in accordance with the Depositories Act, 1996, the SEBI (Depositories and Participants) Regulations, 2018, Depository bye laws and other applicable regulations and circulars.

Pledge, hypothecation, lien, negative lien, non-disposal undertaking or non-disposal agreement;

Any restriction on the free and marketable title to securities, by whatever name called, whether executed directly or indirectly;

Any covenant, transaction, condition or arrangement in the nature of encumbrance, by whatever name called, whether executed directly or indirectly.

The DT may furnish a due diligence certificate, confirming that it has carried out due diligence for the clauses other than that related to security creation [clauses are specified in the formats prescribed under regulations 40(a) and 44(3) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) and Annexure A of SEBI Circular dated November 03, 2020].

At the time of the issuance of the tranche memorandum/ prospectus when the issue structure including terms related to security has been determined and finalized, the DT shall issue a due diligence certificate covering all clauses of formats prescribed under regulations 40(a) and 44(3) of the NCS Regulations and Annexure A of SEBI Circular dated November 03, 2020, as applicable.

Source: SecMarx — Enhanced guidelines for debenture trustees and listed issuer companies on security creation and initial due diligence. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.