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TMI BlogGUIDELINES FOR ISSUE OF CONVERTIBLE DEBT INSTRUMENTSX X X X Extracts X X X X X X X X Extracts X X X X ..... espect of Debenture Trustee 10.2.1 8(No company shall issue a prospectus or a letter of offer to the public for subscription of its debentures, unless the company has appointed one or more debenture trustees for such debentures in accordance with the provisions of the Companies Act, 1956.) 10.2.2 9The names of the debenture trustees shall be stated in the Offer Documents and also in all the subsequent periodical communications sent to the debenture holders). 10.2.3 10(A trust deed shall be executed by the issuer company in favour of the debenture trustees within three months of the closure of the issue.) 10.2.4 Trustees to the debenture issue shall be vested with the requisite powers for protecting the interest of debenture holders including a right to appoint a nominee director on the Board of the company in consultation with institutional debenture holders. 10.2.5 11(The merchant banker shall, along with the draft offer document, file with the Board, certificates from the bankers of the Company that the assets on which the security is to be created are free from any encumbrances and the necessary permissions to mortgage the assets have been obtained or No-objection Certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan covenants is necessary if the company does not comply with institutional condition regarding interest and debt service coverage ratio. (c) (i) Dividends may be distributed out of profit of particular years only after transfer of requisite amount in DRR. (ii) If residual profits after transfer to DRR are inadequate to distribute reasonable dividends, company may distribute dividend out of general reserve. 10.5 Redemption 10.5.1 The issuer company shall redeem the debentures as per the offer document. 10.6 17(Disclosure and) Creation of Charge 18(10.6.1 The offer document shall specifically state the assets on which security shall be created and shall also state the ranking of the charge/s. In case of second or residual charge or subordinated obligation, the offer document shall clearly state the risks associated with such subsequent charge. The relevant consent for creation of security such as pari passu letter, consent of the lessor of the land in case of leasehold land etc. shall be obtained and submitted to the debenture trustee before opening of issue of debenture.) 19(10.6.2 The offer document shall state the security / asset cover to be maintained. The basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained from a credit rating agency registered with the Board within a period of six months prior to the due date of redemption and communicated to the debenture holders before the roll over.) (d) Fresh trust deed shall be executed at the time of such roll over. (e) Fresh security shall be created in respect of such debentures to be rolled over. Provided that if the existing trust deed or the security documents provide for continuance of the security till redemption of debentures, fresh trust deed or fresh security need not be created.) 31(10.7.1.1A Roll over of Non Convertible portions of Partly Convertible Debentures (PCDs) 32(Deleted) by the company being in default. The non-convertible portions of PCDs 33(Deleted) issued by a listed company, the value of which exceeds ₹ 50 lacs, can be rolled over without change in the interest rate subject to section 121 of the Companies Act, 1956 and subject to the following conditions, where the company is in default: (a) A resolution to this effect is passed by postal ballot, having the assent from not less than 75% of the debenture-holders. (b) The company shall send an Auditors' certificate on the cash flow of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinated debt instruments/ obligations (which are not 'public deposits' as per the provisions of Section 58 A of the Companies Act, 1956 or such other notifications, guidelines, Circular etc. issued by RBI, DCA or other authorities). Provided that such issue shall be subscribed by Qualified Institutional Buyers or other investor who has given positive consent for subscribing to such unsecured / sub-ordinated debt instruments/ obligation.) 10.8 Other requirements 10.8.1 36(Deleted) 10.8.2 37(Deleted) 10.8.3 (a) No issue of debentures by an issuer company shall be made for acquisition of shares or providing loan to any company belonging to the same group. Sub-clause (a) shall not apply to the issue of fully convertible debentures providing conversion within a period of eighteen months. 10.8.4 Premium amount and time of conversion shall be determined by the issuer company and disclosed. 10.8.5 The interest rate for debentures can be freely determined by the issuer company. 10.9 Additional Disclosures in respect of debentures The offer document shall contain: (a) Premium amount on conversion, time of conversion. (b) In case of 38(Deleted) 39(PCDs) redemption amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed." Prior to the above, clause 10.1.3 was substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: "Where credit rating is obtained from more than one credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed." 7 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008 for the words "debt instruments (including convertible instruments)". 8 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: "In case of issue of debenture with maturity of more than 18 months, the issuer shall appoint a Debenture Trustee." 9 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: "The names of the debenture trustees must be stated in the offer document". 10 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: "A trust deed shall be executed by the issuer company in favour of the debenture trustees within six months of the closure of the issue." 11 Substituted vide SEBI/CFD/DIL/DIP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a DRR shall not be applicable in case of issue of debt instruments by infrastructure companies." 16 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: "In case of new companies, distribution of dividend shall require approval of the trustees to the issue and the lead institution, if any." 17 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 4 dated September 06, 2000. 18 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 4 dated September 06, 2000. 19 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 4 dated September 06, 2000. 20 Deleted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 the following: "The security shall be created within six months from the date of issue of debentures. Provided that if for any reasons the company fails to create security within 12 months from the date of issue of debentures the company shall be liable to pay 2% penal interest to debenture holders. Provided further that if security is not created even after 18 months, a meeting of the debenture holders shall be called within 21 days to explain the reasons thereof and the date by which the security shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fresh credit rating shall be obtained within a period of six months prior to the due date of redemption and communicated to debenture holders before roll over. (d) Fresh trust deed shall be executed at the time of such roll over. (e) Fresh security shall be created in respect of such debentures to be rolled over. Provided that if the existing trust deed or the security documents provide for continuance of the security till redemption of debentures fresh security may not be created." 27 Omitted the words "/ Non Convertible Debntures (NCDs)," vide SEBI Circular No. SEBI/CFD/DIL/DIP/32/ 2008/28/08 dated August 28, 2008. 28 Omitted the words "or the NCDs" vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. 29 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/29/2007/03/12 dated December 3, 2007 for the following: "Before roll over of any NCDs or non-convertible portion of the PCDs, at least two credit ratings of not less than investment grade, shall be obtained within a period of six months prior to the due date of redemption and communicated to debenture holders before roll over." 30 Omitted the words "NCDs or" vide SEBI Circular No. SEBI/CFD/DI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified by the shareholders in their meeting. Such conversions shall be optional for acceptance on the part of individuals debenture holders. The dissenting debenture holders shall have the right to continue as debenture holders if the terms of conversions are not acceptable to them. iii) Where issue of PCDs and FCDs is made pursuant to the consent given by the Controller of Capital Issues and the consent specifies the timing of conversion but the price of conversion of PCDs / FCDs is to be determined at a later date, the following shall be complied with:- a) the consent of the shareholders is to be obtained only for the purposes of fixing the price of conversion and not for the pre-poning and postponing the timing of the conversion approved by CCI. b) The conversion price shall be reasonable (in comparison with previous conversion price where the terms of the issue provide for more than one conversion) and the conversion price shall not exceed the face value of that part of the convertible debenture which is sought to be converted. c) In cases where an option is to be given to the debentureholders and, if any debentureholder does not exercise the option to convert the debentur ..... 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