Sebi to Revise Regulatory Framework for Debenture Trustees

Sebi is considering steps to strengthen the framework for debenture trustees, including raising the minimum net worth requirement for registration of such entities and introducing e-voting provision to obtain the consent of the unitholders.

The proposal is likely to be discussed at Sebi’s board meeting this week. In order to secure the interests of debenture holders and to enable debenture trustees (DTs) to perform their duties effectively and promptly in the interests of investors, Sebi had floated a public consultation paper on the proposed changes in October.

The board of Sebi may make a new framework for debenture trustees based on the public comments received on the consultation paper.

The proposed changes include raising the minimum net worth requirement for registration of debenture trustees to Rs 10 crore from the current Rs 2 crore. Further, a three-year time would be given for attaining this net worth requirement.

The new criteria will help in restricting registration of debenture trustees to financially sound entities.

It has been proposed that there should be no requirement of calling for a meeting of debenture holders in the event of default by the issuer in case of public issues. The DT can directly enforce the security without obtaining any consent from the debenture holders.

Among others, it has been proposed that DTs should disclose the nature of compensation arrangements with their clients on their websites. The disclosure include the minimum fee that a DT will charge and factors determining the fee charged.

Also, e-voting has been proposed as a valid option for obtaining the consent of debenture holders wherever applicable.

A debenture trustee, in market parlance, is a person or entity that serves as the holder of debenture stock for the benefit of another party. Debenture is a debt instrument that is not secured by physical assets or collateral.

According to Sebi, there have been cases of delay in enforcing the security in the event of default, which is detrimental to the interests of the investors.

Data received from the Trustee Association of India (TAI) indicates that DTs have been able to enforce the security successfully in around 35 per cent of the issues that have defaulted in the past five financial years, thereby building the the case for strengthening the framework for DTs by Sebi.

Under the proposal, DTs should display on their website the details of interest/ redemption due to the debenture holders in respect of all issues during a financial year within five working days of start of financial year.