SEBI asks more transparency from debenture trustees

SEBI has directed debenture trustees (DTs) to be more transparent to protect the interest of investors. Debentures are unsecured and any fallout is capable of leading to a crisis.

A debenture trustee serves as a third party holder of debenture stocks in favour of an investor. A company raises capital by issuing stock as a form of debt and promises to repay the debt (at a particular rate of interest) on a later date.

SEBI in a circular said that the DTs must disclose the nature of compensation on their website and it should include the minimum fee chargeable.

DTs shall display the details of the rate of interest and redemption due on debenture holders concerning all issues over a financial year within the first five working days from the start of a financial year.

Remark on delayed payment

The status of payment against these issuers must be disclosed within one day from the due date. If the issuer delays the payment, then the DTs must update the calendar with ‘delayed payment’ remark.

SEBI has directed registrars to issue and to share an agent for transfer to forward details of debenture holders at the allotment time. This direction is made with a view of enabling DTs to update their records and communicate with the debenture holders when there is a default.

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In case of privately placed issues, additional undertakings related to the default in payment and listing must be mentioned in the agreement between the issuer and investor.

The issuer company shall pay an interest of a minimum of 2% per annum over the coupon rate for the default period.

On similar lines, for the delay in listing debt securities for more than 20 days from the allotment date, the issuer company must pay an interest of at least 1% per annum over the coupon rate to the investor after 30 days from the deemed allotment date till the listing of such securities.