Due Diligence Circular for Debt Securities by Debenture Trustees – Deferred – Finance and Banking

India: Debt Due Diligence Circular by Debenture Trustees – Deferred

The Securities and Exchange Board of India (SEBI) seevarious circulars of October and November 2020 had considerably streamlined the process of issuing and listing debt securities. SEBI, in its circular of 03 November 2020, had specified comprehensive guidelines for the constitution of collateral and the due diligence to be carried out by the trustee (s) of the obligations with regard to the issuance of listed debt securities ( Circular).

The circular, among others, required the debenture trustee to perform an independent audit to ensure that the assets offered as collateral for the debt securities are sufficient to pay interest and principal on the debt securities and to provide a due diligence certificate prior to the issuance and after issuance in connection with the creation of the security by the issuer. In addition, it required the issuer to create a charge on the security referred to in the prospectus, prior to the request for listing of the debt securities, on the stock exchanges within 2 working days following the allocation of the securities. debt. The Circular was to enter into force on January 1, 2020. We had previously discussed in detail the characteristics of the said Circular. To learn more click here.

Following the various representations received by SEBI from the debenture trustees and after taking into consideration the challenges arising from the commercial and market conditions in effect due to the Covid-19 pandemic, SEBI has decided to extend the implementation date. implementation of the said circular on April 1. 2021.

Comments: Extending the circular’s implementation date will provide relief to many issuers already struggling with operations amid the current Covid 19 pandemic, and give debenture trustees additional time to build the infrastructure needed to undertake the due diligence envisaged in the circular. However, the other circulars issued by SEBI concerning: a) the mandate of the issuer to create a collection costs fund, by circular of 22 October 2020; and (b) the supervision and disclosure by the Trustee of the Debentures by way of a circular dated November 12, 2020, will be effective January 1, 2021 and no extension of the implementation date has been provided for that date. -this.

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