7 Debenture Trustees' Disclosure Obligations: Ensuring Transparency and Accountability

Key Takeaways:

- Debenture Trustees must disclose credit rating revisions, payment status, security cover monitoring, covenant breaches, investor grievances, and default cases on their websites.

- These disclosures ensure transparency and enable investors to make informed decisions.

- Specific formats and timelines are prescribed for different types of disclosures, ranging from continuous basis to annual basis.

- Debenture Trustees must also disclose their compensation arrangements with clients on their websites.

- Failure to comply with these disclosure requirements may attract regulatory action.

Detailed Narrative:

The Securities and Exchange Board of India (SEBI) has introduced comprehensive disclosure requirements for Debenture Trustees to promote transparency and accountability in the debt securities market. These disclosures, which must be made on the Debenture Trustee's website, cover various aspects, including credit rating revisions, payment status, security cover monitoring, covenant breaches, investor grievances, and default cases.

One of the key disclosure requirements is the continuous disclosure of credit rating revisions and the status of payment of interest or redemption of principal by the issuer. Debenture Trustees must update this information on their websites within one day of receiving it from the Credit Rating Agencies (CRAs) or the issuer.

Quarterly disclosures are mandated for monitoring the security cover certificate, quarterly compliance reports submitted by the issuer, and the status of information regarding breach of covenants or terms of the issue, along with any action taken by the Debenture Trustee. These disclosures must be made within 75 days of the end of each quarter, except for the last quarter, when the deadline is 90 days.

On a half-yearly basis, Debenture Trustees must disclose details of the debenture issues they have handled, including their status, complaints received, and the status of information regarding breach of covenants or terms of the issue. Additionally, they must disclose the net worth certificate of the guarantor in case the debt securities are secured by a personal guarantee.

Annual disclosures include the financials or value of the guarantor prepared based on audited financial statements (in case of corporate guarantees), the status of maintenance of accounts under the Debenture Trustee's supervision, and the status of information regarding any default by the issuer and the action taken by the Debenture Trustee.

Furthermore, Debenture Trustees must disclose their compensation arrangements with clients on their websites, including the minimum fee charged and the factors determining the same.

Failure to comply with these disclosure requirements may attract regulatory action from SEBI, as these disclosures are crucial for ensuring transparency and enabling investors to make informed decisions in the debt securities market.

FAQs:

Q1: Why are these disclosure requirements important?

A1: These disclosure requirements are essential for promoting transparency and accountability in the debt securities market. They ensure that investors have access to critical information, enabling them to make informed decisions and protect their interests.

Q2: What happens if a Debenture Trustee fails to comply with these disclosure requirements?

A2: Failure to comply with these disclosure requirements may attract regulatory action from SEBI, as these disclosures are crucial for ensuring transparency and enabling investors to make informed decisions.

Q3: Are there specific formats prescribed for these disclosures?

A3: Yes, SEBI has prescribed specific formats for different types of disclosures, such as credit rating revisions, payment status, security cover monitoring, covenant breaches, investor grievances, and default cases. These formats ensure consistency and standardization across the industry.

Q4: How often do Debenture Trustees need to update these disclosures?

A4: The frequency of disclosures varies depending on the type of information. Some disclosures, such as credit rating revisions and payment status, must be made on a continuous basis, while others, like security cover monitoring and covenant breaches, are required on a quarterly or half-yearly basis.

Q5: What is the significance of disclosing compensation arrangements with clients?

A5: Disclosing compensation arrangements with clients promotes transparency and helps investors understand the potential conflicts of interest that may arise. It also allows them to assess the reasonableness of the fees charged by Debenture Trustees.

Key Precedents:

1. SEBI/HO/MIRSD/MIRSD_CRADT/CIR/P/2022/67 dated May 19, 2022:

This circular provided guidelines for revised formats of security cover certificates, monitoring, and revision of timelines for various disclosures by Debenture Trustees.

2. SEBI/HO/MIRSD/CRADT/CIR/P/2020/230 dated November 12, 2020:

This circular outlined the monitoring and disclosure requirements for Debenture Trustees, including the disclosure of credit rating revisions, payment status, security cover monitoring, and covenant breaches.

3. SEBI/HO/MIRSD/DOS3/CIR/P/2019/68 dated May 27, 2019:

This circular mandated the disclosure of compensation arrangements with clients by Debenture Trustees on their websites.

4. CIR/MIRSD/3/2014 dated August 28, 2014:

This circular required Debenture Trustees to prominently display information regarding their grievance redress mechanism on their websites and offices.

5. MIRSD/DPS III//Cir-01/07 dated January 22, 2007:

This circular directed Debenture Trustees to designate an email ID exclusively for the purpose of registering complaints by investors and to display it prominently on their websites and other materials.

These precedents highlight SEBI's efforts to enhance transparency, accountability, and investor protection in the debt securities market by mandating various disclosure requirements for Debenture Trustees.

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Here's the SEBI's Debenture Trustees' circular's verbatim Chapter VII

Chapter VII: Disclosures on the website of a Debenture Trustee{21}

1. Disclosure by Debenture Trustee on its website

The Debenture Trustee shall make the following disclosures on its website as specified below:

2. Disclosure of compensation arrangement with clients by Debenture Trustee on its websites{22}

A Debenture Trustee shall disclose the nature of compensation arrangement with its clients on its website, including the minimum fee to be charged (in absolute terms or as a percentage of the issue size) and factors determining the same.

3. Calendar of interest/ redemptions, due and paid, to be displayed on the website of Debenture Trustee for the financial year

3.1.A Debenture Trustee shall display on its website the ISIN wise details of interest/ redemption due to the holders of listed debt securities in respect of all issues during a financial year within five working days of start of financial year.

3.2.A Debenture Trustee shall also update such details for any new issue of debt securities handled during the financial year within five days of closure of the Issue.

3.3.A Debenture Trustee shall also update the status of payment ISIN-wise against such issuers not later than one day from the due date. In case the payment is made with a delay by the issuer, Debenture Trustee shall update the calendar specifying the date of such payment, with a remark ‘delayed payment’.

6. Complaints received by Debenture Trustee including default cases.

7. Status regarding maintenance of accounts maintained under supervision of Debenture Trustee

a. Debenture Redemption Reserve/Debenture Redemption/ maintenance of funds as per Companies (Share Capital and Debentures) Rules, 2014

Note:-

{21}SEBI/HO/MIRSD/MIRSD_CRADT/CIR/P/2022/67 dated May 19, 2022 and SEBI/HO/MIRSD/CRADT/CIR/P/2020/230 dated November 12, 2020

{22}SEBI/ HO/ MIRSD/ DOS3/CIR/P/2019/68 dated May 27, 2019