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TMI BlogCreation of Security in issuance of listed debt securities and ‘due diligence’ by debenture trustee(s)X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and 21B of ILDS Regulations require an Issuer to disclose a proposal to create security in offer document ( OD ) or private placement memorandum ( PPM )/ information memorandum ( IM ). Schedule I of ILDS Regulations specifies that the type of security (movable, immovable, tangible, intangible etc.) and type of charge (pledge, hypothecation, mortgage etc.) shall be disclosed by the Issuer. 3. Regulation 13 of the DT Regulations stipulates that the debenture trustee shall enter into a written agreement ( debenture trustee agreement ) with the Issuer before the debenture trustee agrees to act as debenture trustee in respect of the said issue of debt securities. 4. In order to enable the debenture trustee to exercise due diligence with respect to creation of security, the Issuer at the time of entering into debenture trustee agreement shall provide the following information/ documents to the debenture trustee(s): 4.1. Details of assets, movable property and immovable property on which charge is proposed to be created including title deeds (original/ certified true copy by issuers/ certified true copy by existing charge holders, as available) or title re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture trustee agreement) of guarantor including details of all contingent liabilities; (c) List of assets of the guarantor along-with undertakings/ consent/ NOC as per para 4.2 and 4.3 above; (d) Conditions of invocation of guarantee including details of put options or any other terms and conditions which may impact the security created; (e) Impact on the security in case of restructuring activity of the guarantor; (f) Undertaking by the guarantor that the guarantee shall be disclosed as contingent liability in the notes to accounts of financial statement of the guarantor; (g) Copy of Board resolution of the guarantor for the guarantee provided in respect of the debt securities of the Issuer; (h) Executed copies of previously entered agreements for providing guarantee to any other person, if any. 4.6. In case securities (equity shares etc.) are being offered as security then a holding statement from the depository participant along-with an undertaking that these securities shall be pledged in favour of debenture trustee(s) in the depository system. 4.7. Details of any other form of security being offered viz. Debt Service Reserve A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture trustee, by itself or through its appointed agencies viz. chartered accountant firm, registered valuer, legal counsel etc., shall prepare one or more reports viz. valuation report, ROC search report, title search report/ appraisal report, asset cover certificate, any other report/ certificate as applicable etc. and shall independently assess that the assets for creation of security are adequate for the proposed issue of debt securities. 8. Debenture trustee shall issue due-diligence certificate as per format specified in Annexure A to the Issuer subject to the following: 8.1. Information on consents/ permissions required for creation of further charge on assets are adequately disclosed in OD or PPM/ IM. 8.2. All disclosures made in the OD or PPM/ IM with respect to creation of security are in confirmation with the clauses of debenture trustee agreement. 8.3. All covenants proposed to be included in debenture trust deed (including any side letter, accelerated payment clause etc.) are disclosed in OD or PPM/ IM. 9. Debenture trustee(s) shall maintain records and documents pertaining to due diligence exercised for a minimum period of five years fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Debenture Trustees) Regulations, 1993 and Regulation 31(1) of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market. 16. Applicability : The provisions of this circular shall come into force w.e.f. January 01, 2021 i.e. for new issues proposed to be listed on or after January 01, 2021. Yours faithfully, Richa G. Agarwal Deputy General Manager Market intermediaries Regulation Supervision Department Email id: [email protected] Phone: +91-22-26449596 Annexure A FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY THE DEBENTURE TRUSTEE AT THE TIME OF FILING THE DRAFT OFFER DOCUMENT OR PRIVATE PLACEMENT MEMORANDUM/ INFORMATION MEMORANDUM To, Stock Exchange Dear Sir / Madam, SUB.: ISSUE OF ____________________ BY _______________LTD. We, the debenture trustee(s) to the above mentioned forthcoming issue state as follows: 1) We have examined documents pertaining to the said issue and other such releva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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