Regulatory updates

SEBI, vide notification dated 11 April 2022, has issued the following regulations:

A. SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2022

According to regulation 54 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), a listed entity which has issued listed non-convertible debt securities should maintain 100 per cent asset cover or higher asset cover as per terms of offer document and/or debenture trust deed, sufficient to discharge, at all times, the principal amount of the non-convertible debt securities issued.

Regulation 56 of the LODR Regulations specifies the list of documents and intimations which are required to be provided by a listed entity to the debenture trustees. Under this, a listed entity is required to submit to the debenture trustees a half-yearly certificate by the statutory auditor for maintenance of 100 per cent asset coveror higher asset cover, as per terms of offer document and/or debenture trust deed in respect of listed non-convertible debt securities.

On 11 April 2022, SEBI issued the SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2022 thereby making the following amendments to the LODR Regulations:

• Term ‘asset cover’ has been substituted with the term ‘security cover’ in Regulations 54 and 56 of the LODR regulations.
• According to Regulation 54, a listed entity would now be required to maintain 100 percent security cover sufficient to discharge both principal and interest(earlier, only principal), in respect of secured listed non-convertible debt securities (earlier, listed non-convertible debt securities).
  (Emphasis added to highlight the change.)

To access the text of the SEBI (LODR) (Third Amendment) Regulations, 2022, please click here

B. SEBI (Debenture Trustees) (Amendment) Regulations, 2022

Regulation 15 of the SEBI (Debenture Trustees) Regulations, 1993 (DT Regulations) prescribes the duties of debenture trustees. In case of secured listed debt securities, debenture trustees are required to:

• Carry out the required due diligence and monitor the asset cover on a quarterly basis, and
• Obtain a certificate from the statutory auditor with respect to asset cover maintained by the issuer on a half-yearly basis.

On 11 April 2022, SEBI issued the SEBI (Debenture Trustees) Amendment Regulations, 2022 thereby making the following amendments in Regulation 15:

• Substitute the term ‘asset cover’ with the term ‘security cover’
• Before the amendment, the DT Regulations specified that debt securities should be secured by way of receivables/book debts. The amendment has now removed the term ‘receivables/book debts’. Accordingly, debt securities can be secured by way of any asset .

To access the text of the SEBI (Debenture Trustees) (Amendment) Regulations, 2022, please click here

C. SEBI (Issue and Listing of Non-Convertible Securities) (Amendment) Regulations, 2022

On 11 April 2022, SEBI made certain amendments to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS regulations)⁸. A summary of the amendments is as follows:

• Regulations 23 and 38 of the NCS Regulations discuss the obligations of the issuer and lead manager on NCS respectively. The issuer and lead manager should ensure that the secured debt securities are secured by 100 per cent security cover or higher security coveras per the terms of the offer document and/or Debenture Trust Deed, sufficient to discharge the principal amount and the interest thereon at all timesfor the issued debt securities (earlier, the issuer and lead manager were required to ensure that secured debt securities are secured by 100 per cent security cover).
  (Emphasis has been added to highlight the change.)
• Regulations 40 and 44 of the NCS Regulations prescribe that debenture trustees should issue a due diligence certificate to the stock exchange and SEBI (in case of public issue) prior to opening of public issue of debt securities or prior to a private placement of debt securities. Due Diligence carried out by the debenture trustees would now be submitted to the stock exchange and to SEBI (in case of public issue) in the formats prescribed for secured debt securities (Schedule IV) and unsecured debt securities (Schedule IVA). Further a format of Schedule IV A has been provided. (Earlier all due diligence certificates were required to be issued in the format prescribed in Schedule IV.)
  (Emphasis added to highlight the change.)
• Rationalised references with respect to disclosure of credit ratings have been stated in Schedules I (Disclosures in prospectus) and II (Disclosures for private placement of NCS) of the NCS Regulations.

To access the text of the SEBI (Issue and Listing of NCS) (Amendment) Regulations, 2022 regulations, please click here

8. Amendments to the NCS regulations have been made by issuance of the SEBI (Issue and Listing of Non-Convertible Securities) (Amendment) Regulations, 2022