Saturday, April 9, 2011

Debenture

Debt Securities - Debentures

Definition as per Companies Act, 1956

“Debenture” includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not;

No debentures will carry any voting rights in the company, whether in general or in respect of particular classes of business.

Debenture is the instrument whereby company acknowledges under the company seal to repay the debt of the company to its debenture holders. In case of liquidation or winding up of the company it is the debenture holders and then the preference holders who hold the first priority to get their capital repaid. It is a mode to raising funds from the general public

Compliance related to Debentures:

Ø Companies Act, 1956

Ø Listing agreement for Debt securities (NSE/BSE)

Ø Securities and Exchange Board of India (Issue and Listing of Debt Securities)Regulations, 2008

Ø Public Companies(Terms of Issue of Debentures and raising of Loans with option to convert such Debenture or loans into shares)Rules,1977

Ø Trustees (Declaration of Holdings of Shares and Debentures)Rules, 1964

Ø The Companies (Passing of the Resolution by postal Ballot)Rules, 2001

Tenure of the Debentures:

Redeemable Debentures: Such debentures are redeemable at par or premium after the expiry of a particular period or under a system of periodical drawings.

Perpetual Debentures: Debentures may be made irredeemable or in other words perpetual. Such debentures are redeemable either on the happening of a contingency or when the company is wound up or when the company decides to redeem.

Mode of Redemption Point of View:

Non-Convertible debentures whereby the full amount of debentures are been redeemed.

Partially convertible debenture are the debentures which are partially bee redeemed and partly been converted in to equity shares.

Fully convertible debentures are the debenture which are fully been converted into equity or preference shares in to agreed terms and conditions. The conversion is to be made at or after 18 months from the date of allotment but before 36 months.

Kinds of Debentures

Secured Debentures: These types of debentures consists of two types i.e. fixed and floating charge

Fixed charge is created on the immoveable property like land and building, plant and machinery, long term investment etc which is equivalent to mortgage. In fixed charge company may not have right to buy or sell or leasing of the property without the consent of the charge holder.

Floating charge is generally on the movable property which is constantly changing and is not equivalent to mortgage. The charge created on stock-in-trade whereby a charge on the stock-in-trade from time to time of a business is a floating charge. When an item is sold out of the stock, the charge ceases to attach to it and the buyer cannot be asked to pay the debt. When a new item is added to it the charge automatically attaches to it without further new agreement. The charge will continue to attach only so long as the item remains unsold.

Unsecured Debenture is the debt which is issued without creation of any charge. It is also known as naked debentures. These debenture holders are ordinary and do not enjoy the special rights.

As per section 117A Companies Act, 1956 issuer is required to create “Debenture Trust deed” for securing any issue of debentures shall formed.

Debenture Trust: When a series of debentures are issued to numerous debenture holders, it is not a practical proposition to create a number of separate charges on the properties of the company in favor of individual debenture holders and its become practically difficult to debenture holders to keep watch on the company assets to ensure self-interest hence Debenture trust deed is been initiated. Debenture trust deed is the contract or a mortgage deed between the parties and the company.Beneficiares are the debenture holder in the trust deed.

Company shall issue prospectus and letter of offer to the public for subscription of its debentures, unless the company has appointed one or mere debentures trustees for such debentures and the company has on the face of the prospectus or the letter of offer unless the debenture trustees have given consent to appoint.

Conditions for issue of debentures:

A] Appointment of Debenture trustees u/s 117B:

No person shall be appointed as debenture trustee if:

(a) Beneficially holds shares in the company;
(b) Is beneficially entitled to moneys which are to be paid by the company to the debenture trustee;
(c) Has entered into any guarantee in respect of principal debts secured by the debentures or interest thereon.

Debenture trustee

1. The functions of the debenture trustees shall generally be to protect the interest of holders of debentures (including the creation of securities within the stipulated time) and to redress the grievances of holders of debentures effectively.

2. The debenture trustee may ensure:

(a)that the charge amount does not exceed the total property of the company.

(b) to satisfy himself that the prospectus or the letter of offer does not contain any matter which is inconsistent with the terms of the debentures or with the trust deed;

(c) to ensure that the company does not commit any breach of covenants and provisions of the trust deed;

(d) to take such reasonable steps to remedy any breach of the covenants of the trust deed or the terms of issue of debentures;

(e) to take steps to call a meeting of holders of debentures as and when such meeting is required to be held.

3. If the debenture trustee finds that the principal amount is not sufficient to satisfy the charge created may file a petition before the central government and then central government after hearing the “person in interest” and the “company” may impose restriction on further liabilities which may be in the interest of the debenture trustees.

B] Liability of the company to create security and Debenture redemption reserve:

As per section 117C of Companies act, 1956 any debenture issued after commencement of this act, company is liable to create the debenture redemption reserve wherein every year a fixed amount must be transferred/credited to the debenture redemption fund in order to meet the payment of principal amount and the interest amount to the debenture holders. The reserve amount must not be used for any other purpose other than redemption of the fund.

In case the company fails to redeem the debentures of pay the interest then on application of the one or all the holders may direct the company to redeem the debenture along with the interest. Every person in default shall be punishable with imprisonment which may extend to three years and shall also be liable to a fine of not less than five hundred rupees for every day during which such default continues.

Copy of the trust deed can be obtained by obtained by any member within seven days of making an application after the payment.

Perpetual Debentures [Section 120 of Companies Act, 1956]

A condition contained in any debentures or in any deed for securing any debentures, whether issued or executed before or after the commencement of this Act, shall not be invalid by reason only that thereby, the debentures are made irredeemable or redeemable only on the happening of a contingency, however remote or on the expiration of a period, however long.

Debenture can be issued for Cash, consideration other than cash, issue as *Collateral

Security at:

  1. Par
  2. Premium
  3. Discount

*Collateral security is in addition to the principal security. When company takes a loan from banks or any financial institution it may issue debentures along with the principal security issued which is

Called as “Debenture issued as collateral security”

In collateral security the bank or the financial institution exercises its right on the debenture only if the principal security is exhausted. If in case bank does not exercises the right then company is not liable to pay interest on debentures as company is already paying the interest on loan and debenture must be returned back to company.

Issue of Debenture:

If Debenture prospectus is issued, applications are invited and letters of allotment are issued. On rejection of the application, application money is refunded.

In partial allotment the excess amount on application of debenture is been adjusted in subsequent calls.

Issue of Debenture at Discount:

If the company issues the debenture in discount, the same is not charged at profit and loss a/c.

The discount amount is generally huge and hence the same is been written off in number of years and the same get fully written off before the redemption of the debentures.

If the company intends for listing of debentures then company needs to comply with the Securities and Exchange Board of India (Issue and Listing of Debt Securities)Regulations, 2008

1. General conditions:

  1. Company must make an application to recognized stock exchange (it may be more than one) for the listing of debentures to be issued.
  2. In-Principal approval of the stock exchange
  3. Credit rating from atleast one credit rating agency registered with SEBI and the same must be disclosed in the offer document. If the credit rating obtained from more than one cresit rating agency then the unaccepted rating must also be disclosed in the offer document.
  4. Appointment of “Debenture trustee”.
  5. Appointment of “Merchant banker”.
  6. Trust deed to be executed in favor of the Debenture trustees before filling of offer document.
  7. Agreement with the depository participant for the dematerialsation of the debt securities to be issued whereby the issuer shall also give an option to the subscriber to receive the debt securities either in physical form or in dematerialized form.
  8. No offerings shall be prejudicially affects the interests of investors and shall be at arms length basis.

2. Draft offer document:

1. Company must file the draft offer document 7 working days prior with SEBI before

submitting it to the registrar of companies.

2. The draft offer document shall be displayed on the website of the issuer, lead merchant banker and stock exchange where the debt securities are to be issued.

3. The Lead merchant banker must ensure that the draft offer document clearly specifies the names and contacts particulars of the compliance officer and issuer company including the postal and address, Telephone and Fax numbers.

4. Lead merchant banker must ensure that all the comments/complaints received must be suitably addressed.

5. The draft offer document must be forwarded to Board for their records.

6. In case of rights and preferential issues of debt securities, there is requirement to file draft offer document with the stock exchange.

3. Disclosures in the offer document for the public issue: An issuer company making a public offer must disclose the material and relevant disclosures in the draft offer document.

1. As provided in Schedule II of the Companies Act, 1956

1. As provided in Schedule I of SEBI (Issue and Listing of Debt securities)

Regulations, 2008.

4. Disclosures in the offer document for the right issue: An issuer company making a right issue of the debt securities must disclose the material and relevant disclosures in the draft offer document.

1. As provided in Schedule I of SEBI (Issue and Listing of Debt securities)

Regulations, 2008.

2. All material changes since the last public/right issue.

3. Latest annual report of the issuer

5. Disclosures in the offer document for the preferential issue: An issuer company making a preferential issue of the debt securities must disclose the material and relevant disclosures in the draft offer document.

1. As provided in Schedule I of SEBI (Issue and Listing of Debt securities)

Regulations,2008.

2. Latest annual report of the issuer

6. Advertisement for the public issue: Issuer company must put the advertisement in the English national daily with wide circulation and one Hindi national newspaper and a regional newspaper with wide circulation at the place of registered office of the issuer company is situated:

  1. At the time of filling of the offer document with registrar of companies
  2. Issue opening date
  3. Issue closing date

And contain the minimum disclosure as per schedule IV

7. Electronic Issuance: Company willing to issue public on-line system of the designated stock exchange shall comply with DIP guidelines (replaced with SEBI (Issue of capital and disclosures

8. Creation of Debenture redemption fund:

1. The issuer company shall create the debenture redemption fund for the debenture issued.

2. The issue proceeds shall be kept in the escrow account until the documents for the creation

of the security is created as per the offer document.

3. The proposal for creating the charge or otherwise of the debt securities must be disclosed

in the offer document.

9. Distribution of Interest:

1. If the issuer company defaults in payment of interest, redemption of debenture or creation

of the security then any distribution of dividend shall require the approval of debenture

trustee.

2. In case of the existing issuers prior permission is to be taken of the lead merchant banker for declaring the dividend exceeding 20%.

OR

In case of any loan covenant when the issuer does not comply with the institutional

condition regarding the interest and debt service coverage ratio.

3. Dividend distributed must be out of profits only, after transfer of required amount to the debenture redemption reserve.

4. Issuer company may use the balance of general reserve for distribution of profits if the balance in residual reserve is insufficient.

10. Redemption of debenture:

1. Redemption of debt securities should be as per the offer document.

2. If the issuer company decides to rollover the debt securities, it shall file with the board a copy of the notice of the resolution to be sent to the holders of such securities through the merchant banker prior dispatching the same to the debenture holders.

3. The notice shall contain the disclosures of the credit rating.

4. The debt securities issued by a listed issuer, the value of which exceeds Rs. 50 lakhs, can be rolled over without change in the interest rate as per section 121 of the companies act,1956 and subject to fulfilling following criteria:

i. Resolution passed by * postal ballot having assent from not less than 75% of the debenture holders.
*(Company may comply with The companies (Passing of the resolution by postal ballot) rules, 2001)

ii. The debentures of the dissenting debenture holders must be redeemed.

iii. Fresh trust deed must be executed for the roll-over.

iv. Fresh security shall be created for roll over debt securities.

If the current trust deed or the security documents provide for the continuous of the security till redemption of debentures, fresh trust deed or fresh security need not to be executed.

In case of default by the issuer, the issuer shall sent the auditors certificate on the cash flow of the issuer with the comments on the liquidity position of the issuer with comments on the liquidity position of the issuer to all debenture holder, along with the notice for passing the said resolution. In such case it will be the debenture trustee to decide whether the company needs to execute the fresh trust deed to the security against the debenture

Debenture trustee shall submit the certificate of compliance to the merchant banker within 15 days of the closure of the roll-over. Company shall issue the unsecured debt other than public deposit u/s 58A of companies act, 1956.

10. Listing of the debt securities:

  1. The issuer of the public issue or the right issue shall comply with the listing agreement of the debt securities of the recognised stock exchange.
  2. The issuers making the issue for less than fifty persons will have to comply with the general conditions as mentioned above.
  3. The issuers making the issue for fifty persons or more shall apply for the listing of such securities to the recognised stock exchange for the listing. In case of more than one stock exchange, issuer must choose one “designated stock exchange”.

11. Continuous Listing of the debt securities: Every credit rating obtained by the issuer from the credit rating agency must submit the same to the stock exchange where debt securities are listed. Any changes in the rating shall be disseminated to the investors and prospective investors..

12. Trading of debt securities: The debt instruments shall be traded and settled in the stock exchange where it is traded. The debt securities which are traded over the counter must be notified to the stock exchange.

13. Obligations of the intermediaries and issuers:

  1. Trustees vest the power to protect the right of the debenture holders and power to appoint nominee director with consultation of the fin national institution.
  2. Merchant banker shall, along with the draft offer document; file with the board certificate of the bankers that the security is free of all encumbrance and necessary permission has been taken from the issuer for creating the security on property and if needed can also take the “No Objection certificate from financial institutions or banks.
  3. Must notify all the material events on the ongoing basis till the closure of the issue.
  4. Debenture trustees shall supervise the implementation of the condition regarding the creation of security for the debentures and debenture redemption reserve.
  5. Debenture Trustee must submit the due-diligence certificate prior to the opening of the Public, right issue or preferential issue of the debt securities.
  6. The issuer shall comply with the continuous listing disclosures specified under listing agreement.
  7. Merchant banker shall verify and confirm that the disclosures made in the offer are true and fair and correct and ensure that issuer has complied the same.
  8. Issue of debenture shall not be made for the acquisition of shares or providing loan to any issuer belonging to the same group.

Complying with the listing agreement:

  1. The issuer willing to list its debt securities must comply with the listing agreement. Listing agreement consists of two parts “PART A” where the equity shares of the company are listed and “PART B” where equity shares of the company is not listed. The issuer shall be bounded with the covenant The issuer will not be liable to follow the covenant which is not related to the issue of debt securities in Equity Listing agreement. The issuer who has already submitted the disclosures to the exchange or SEBI or any other authority shall not be required to resubmit any such information as per listing agreement.
  2. The issuer must whether the request is made or not must forward the following to Debenture trustee:
    1. A copy of Statutory auditor and Directors annual report, Balance sheet and Profit & Loss account and of all periodical special reports at the same time as they are been issued.
    2. Copy of the resolutions, notices and circulars related to new issue of the debt securities at the same time that are sent to the shareholders/holders.
    3. A copy of all the notices, call letters, circulars, proceedings etc of the meeting of debt security holders at the same time as they are sent to the holders in debt securities or advertised in the media.
    4. A half yearly certificate regarding maintenance of 100% assets cover in respect of listed debt security by either chartered secretary or chartered accountant along with half yearly financial results. Submission of half-yearly certificate is not required if the issuer is the BANK or NBFC registered with SEBI or where bonds are secured by the Government guarantee.
  3. Issuer must provide information relating to the books of accounts as called by the

debenture trustee.

  1. In the half yearly/annual results issuer shall separately mention below the Earning per share the debt service coverage ratio and interest service coverage ration. The same is not mandatory to Bank or NBFC issuers registered with RBI.
  2. The Issuer must maintain 100% assets cover for the listed debt securities to discharge the principal amount at all times for the debt securities and disclose the same in half yearly basis and in its annual financial statements to the extend of security created.
  3. The Issuer must sent to the stock exchange attested by the trustees the following:
    1. Credit rating
    2. Assets cover available
    3. Debt-equity ratio
    4. Previous due date for the payment of interest/principal and whether the same has been paid or not and
    5. Next due date for the payment of interest /principal

Issuer needs to comply to the other norms relating to dematerialsation and interest payamnet as per listing agreement norms.

Listing fees

The listing fees depend on the issue size:

Particulars

Amount (Rs.)

Initial Listing Fees

7,500

Annual Listing Fees
Issue size:

Of Rs.1 crore

2,100

Above Rs.1 crore and up to Rs.5 crores

4,200

Above Rs.5 crores and up to Rs.10 crores

7,000

Above Rs.10 crores and up to Rs.20 crores

14,000

Above Rs.20 crores and up to Rs.50 crores

21,000

Above Rs.50 crores

35,000


Issuers which have applied for listing of issue size more than Rs. 50 crores would be charged an additional listing fees of Rs. 700 for every increase of Rs. 5 crores or part thereof in the issue size (in Rs.) subject to a maximum of Rs. 50,000/-.
Annual listing fee payable by an Issuer is limited to a maximum of Rs. 7.50 lacs.

Debenture with conversion option: The issuer can issue debentures with conversion option, for which issuer may comply with “Public companies (Terms of Issue of Debentures and Raising of Loans with option to convert such Debentures or Loans into Shares) Rules, 1977”.

Debenture

Debt Securities - Debentures

Definition as per Companies Act, 1956

“Debenture” includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not;

No debentures will carry any voting rights in the company, whether in general or in respect of particular classes of business.

Debenture is the instrument whereby company acknowledges under the company seal to repay the debt of the company to its debenture holders. In case of liquidation or winding up of the company it is the debenture holders and then the preference holders who hold the first priority to get their capital repaid. It is a mode to raising funds from the general public

Compliance related to Debentures:

Ø Companies Act, 1956

Ø Listing agreement for Debt securities (NSE/BSE)

Ø Securities and Exchange Board of India (Issue and Listing of Debt Securities)Regulations, 2008

Ø Public Companies(Terms of Issue of Debentures and raising of Loans with option to convert such Debenture or loans into shares)Rules,1977

Ø Trustees (Declaration of Holdings of Shares and Debentures)Rules, 1964

Ø The Companies (Passing of the Resolution by postal Ballot)Rules, 2001

Tenure of the Debentures:

Redeemable Debentures: Such debentures are redeemable at par or premium after the expiry of a particular period or under a system of periodical drawings.

Perpetual Debentures: Debentures may be made irredeemable or in other words perpetual. Such debentures are redeemable either on the happening of a contingency or when the company is wound up or when the company decides to redeem.

Mode of Redemption Point of View:

Non-Convertible debentures whereby the full amount of debentures are been redeemed.

Partially convertible debenture are the debentures which are partially bee redeemed and partly been converted in to equity shares.

Fully convertible debentures are the debenture which are fully been converted into equity or preference shares in to agreed terms and conditions. The conversion is to be made at or after 18 months from the date of allotment but before 36 months.

Kinds of Debentures

Secured Debentures: These types of debentures consists of two types i.e. fixed and floating charge

Fixed charge is created on the immoveable property like land and building, plant and machinery, long term investment etc which is equivalent to mortgage. In fixed charge company may not have right to buy or sell or leasing of the property without the consent of the charge holder.

Floating charge is generally on the movable property which is constantly changing and is not equivalent to mortgage. The charge created on stock-in-trade whereby a charge on the stock-in-trade from time to time of a business is a floating charge. When an item is sold out of the stock, the charge ceases to attach to it and the buyer cannot be asked to pay the debt. When a new item is added to it the charge automatically attaches to it without further new agreement. The charge will continue to attach only so long as the item remains unsold.

Unsecured Debenture is the debt which is issued without creation of any charge. It is also known as naked debentures. These debenture holders are ordinary and do not enjoy the special rights.

As per section 117A Companies Act, 1956 issuer is required to create “Debenture Trust deed” for securing any issue of debentures shall formed.

Debenture Trust: When a series of debentures are issued to numerous debenture holders, it is not a practical proposition to create a number of separate charges on the properties of the company in favor of individual debenture holders and its become practically difficult to debenture holders to keep watch on the company assets to ensure self-interest hence Debenture trust deed is been initiated. Debenture trust deed is the contract or a mortgage deed between the parties and the company.Beneficiares are the debenture holder in the trust deed.

Company shall issue prospectus and letter of offer to the public for subscription of its debentures, unless the company has appointed one or mere debentures trustees for such debentures and the company has on the face of the prospectus or the letter of offer unless the debenture trustees have given consent to appoint.

Conditions for issue of debentures:

A] Appointment of Debenture trustees u/s 117B:

No person shall be appointed as debenture trustee if:

(a) Beneficially holds shares in the company;
(b) Is beneficially entitled to moneys which are to be paid by the company to the debenture trustee;
(c) Has entered into any guarantee in respect of principal debts secured by the debentures or interest thereon.

Debenture trustee

1. The functions of the debenture trustees shall generally be to protect the interest of holders of debentures (including the creation of securities within the stipulated time) and to redress the grievances of holders of debentures effectively.

2. The debenture trustee may ensure:

(a)that the charge amount does not exceed the total property of the company.

(b) to satisfy himself that the prospectus or the letter of offer does not contain any matter which is inconsistent with the terms of the debentures or with the trust deed;

(c) to ensure that the company does not commit any breach of covenants and provisions of the trust deed;

(d) to take such reasonable steps to remedy any breach of the covenants of the trust deed or the terms of issue of debentures;

(e) to take steps to call a meeting of holders of debentures as and when such meeting is required to be held.

3. If the debenture trustee finds that the principal amount is not sufficient to satisfy the charge created may file a petition before the central government and then central government after hearing the “person in interest” and the “company” may impose restriction on further liabilities which may be in the interest of the debenture trustees.

B] Liability of the company to create security and Debenture redemption reserve:

As per section 117C of Companies act, 1956 any debenture issued after commencement of this act, company is liable to create the debenture redemption reserve wherein every year a fixed amount must be transferred/credited to the debenture redemption fund in order to meet the payment of principal amount and the interest amount to the debenture holders. The reserve amount must not be used for any other purpose other than redemption of the fund.

In case the company fails to redeem the debentures of pay the interest then on application of the one or all the holders may direct the company to redeem the debenture along with the interest. Every person in default shall be punishable with imprisonment which may extend to three years and shall also be liable to a fine of not less than five hundred rupees for every day during which such default continues.

Copy of the trust deed can be obtained by obtained by any member within seven days of making an application after the payment.

Perpetual Debentures [Section 120 of Companies Act, 1956]

A condition contained in any debentures or in any deed for securing any debentures, whether issued or executed before or after the commencement of this Act, shall not be invalid by reason only that thereby, the debentures are made irredeemable or redeemable only on the happening of a contingency, however remote or on the expiration of a period, however long.

Debenture can be issued for Cash, consideration other than cash, issue as *Collateral

Security at:

  1. Par
  2. Premium
  3. Discount

*Collateral security is in addition to the principal security. When company takes a loan from banks or any financial institution it may issue debentures along with the principal security issued which is

Called as “Debenture issued as collateral security”

In collateral security the bank or the financial institution exercises its right on the debenture only if the principal security is exhausted. If in case bank does not exercises the right then company is not liable to pay interest on debentures as company is already paying the interest on loan and debenture must be returned back to company.

Issue of Debenture:

If Debenture prospectus is issued, applications are invited and letters of allotment are issued. On rejection of the application, application money is refunded.

In partial allotment the excess amount on application of debenture is been adjusted in subsequent calls.

Issue of Debenture at Discount:

If the company issues the debenture in discount, the same is not charged at profit and loss a/c.

The discount amount is generally huge and hence the same is been written off in number of years and the same get fully written off before the redemption of the debentures.

If the company intends for listing of debentures then company needs to comply with the Securities and Exchange Board of India (Issue and Listing of Debt Securities)Regulations, 2008

1. General conditions:

  1. Company must make an application to recognized stock exchange (it may be more than one) for the listing of debentures to be issued.
  2. In-Principal approval of the stock exchange
  3. Credit rating from atleast one credit rating agency registered with SEBI and the same must be disclosed in the offer document. If the credit rating obtained from more than one cresit rating agency then the unaccepted rating must also be disclosed in the offer document.
  4. Appointment of “Debenture trustee”.
  5. Appointment of “Merchant banker”.
  6. Trust deed to be executed in favor of the Debenture trustees before filling of offer document.
  7. Agreement with the depository participant for the dematerialsation of the debt securities to be issued whereby the issuer shall also give an option to the subscriber to receive the debt securities either in physical form or in dematerialized form.
  8. No offerings shall be prejudicially affects the interests of investors and shall be at arms length basis.

2. Draft offer document:

1. Company must file the draft offer document 7 working days prior with SEBI before

submitting it to the registrar of companies.

2. The draft offer document shall be displayed on the website of the issuer, lead merchant banker and stock exchange where the debt securities are to be issued.

3. The Lead merchant banker must ensure that the draft offer document clearly specifies the names and contacts particulars of the compliance officer and issuer company including the postal and address, Telephone and Fax numbers.

4. Lead merchant banker must ensure that all the comments/complaints received must be suitably addressed.

5. The draft offer document must be forwarded to Board for their records.

6. In case of rights and preferential issues of debt securities, there is requirement to file draft offer document with the stock exchange.

3. Disclosures in the offer document for the public issue: An issuer company making a public offer must disclose the material and relevant disclosures in the draft offer document.

1. As provided in Schedule II of the Companies Act, 1956

1. As provided in Schedule I of SEBI (Issue and Listing of Debt securities)

Regulations, 2008.

4. Disclosures in the offer document for the right issue: An issuer company making a right issue of the debt securities must disclose the material and relevant disclosures in the draft offer document.

1. As provided in Schedule I of SEBI (Issue and Listing of Debt securities)

Regulations, 2008.

2. All material changes since the last public/right issue.

3. Latest annual report of the issuer

5. Disclosures in the offer document for the preferential issue: An issuer company making a preferential issue of the debt securities must disclose the material and relevant disclosures in the draft offer document.

1. As provided in Schedule I of SEBI (Issue and Listing of Debt securities)

Regulations,2008.

2. Latest annual report of the issuer

6. Advertisement for the public issue: Issuer company must put the advertisement in the English national daily with wide circulation and one Hindi national newspaper and a regional newspaper with wide circulation at the place of registered office of the issuer company is situated:

  1. At the time of filling of the offer document with registrar of companies
  2. Issue opening date
  3. Issue closing date

And contain the minimum disclosure as per schedule IV

7. Electronic Issuance: Company willing to issue public on-line system of the designated stock exchange shall comply with DIP guidelines (replaced with SEBI (Issue of capital and disclosures

8. Creation of Debenture redemption fund:

1. The issuer company shall create the debenture redemption fund for the debenture issued.

2. The issue proceeds shall be kept in the escrow account until the documents for the creation

of the security is created as per the offer document.

3. The proposal for creating the charge or otherwise of the debt securities must be disclosed

in the offer document.

9. Distribution of Interest:

1. If the issuer company defaults in payment of interest, redemption of debenture or creation

of the security then any distribution of dividend shall require the approval of debenture

trustee.

2. In case of the existing issuers prior permission is to be taken of the lead merchant banker for declaring the dividend exceeding 20%.

OR

In case of any loan covenant when the issuer does not comply with the institutional

condition regarding the interest and debt service coverage ratio.

3. Dividend distributed must be out of profits only, after transfer of required amount to the debenture redemption reserve.

4. Issuer company may use the balance of general reserve for distribution of profits if the balance in residual reserve is insufficient.

10. Redemption of debenture:

1. Redemption of debt securities should be as per the offer document.

2. If the issuer company decides to rollover the debt securities, it shall file with the board a copy of the notice of the resolution to be sent to the holders of such securities through the merchant banker prior dispatching the same to the debenture holders.

3. The notice shall contain the disclosures of the credit rating.

4. The debt securities issued by a listed issuer, the value of which exceeds Rs. 50 lakhs, can be rolled over without change in the interest rate as per section 121 of the companies act,1956 and subject to fulfilling following criteria:

i. Resolution passed by * postal ballot having assent from not less than 75% of the debenture holders.
*(Company may comply with The companies (Passing of the resolution by postal ballot) rules, 2001)

ii. The debentures of the dissenting debenture holders must be redeemed.

iii. Fresh trust deed must be executed for the roll-over.

iv. Fresh security shall be created for roll over debt securities.

If the current trust deed or the security documents provide for the continuous of the security till redemption of debentures, fresh trust deed or fresh security need not to be executed.

In case of default by the issuer, the issuer shall sent the auditors certificate on the cash flow of the issuer with the comments on the liquidity position of the issuer with comments on the liquidity position of the issuer to all debenture holder, along with the notice for passing the said resolution. In such case it will be the debenture trustee to decide whether the company needs to execute the fresh trust deed to the security against the debenture

Debenture trustee shall submit the certificate of compliance to the merchant banker within 15 days of the closure of the roll-over. Company shall issue the unsecured debt other than public deposit u/s 58A of companies act, 1956.

10. Listing of the debt securities:

  1. The issuer of the public issue or the right issue shall comply with the listing agreement of the debt securities of the recognised stock exchange.
  2. The issuers making the issue for less than fifty persons will have to comply with the general conditions as mentioned above.
  3. The issuers making the issue for fifty persons or more shall apply for the listing of such securities to the recognised stock exchange for the listing. In case of more than one stock exchange, issuer must choose one “designated stock exchange”.

11. Continuous Listing of the debt securities: Every credit rating obtained by the issuer from the credit rating agency must submit the same to the stock exchange where debt securities are listed. Any changes in the rating shall be disseminated to the investors and prospective investors..

12. Trading of debt securities: The debt instruments shall be traded and settled in the stock exchange where it is traded. The debt securities which are traded over the counter must be notified to the stock exchange.

13. Obligations of the intermediaries and issuers:

  1. Trustees vest the power to protect the right of the debenture holders and power to appoint nominee director with consultation of the fin national institution.
  2. Merchant banker shall, along with the draft offer document; file with the board certificate of the bankers that the security is free of all encumbrance and necessary permission has been taken from the issuer for creating the security on property and if needed can also take the “No Objection certificate from financial institutions or banks.
  3. Must notify all the material events on the ongoing basis till the closure of the issue.
  4. Debenture trustees shall supervise the implementation of the condition regarding the creation of security for the debentures and debenture redemption reserve.
  5. Debenture Trustee must submit the due-diligence certificate prior to the opening of the Public, right issue or preferential issue of the debt securities.
  6. The issuer shall comply with the continuous listing disclosures specified under listing agreement.
  7. Merchant banker shall verify and confirm that the disclosures made in the offer are true and fair and correct and ensure that issuer has complied the same.
  8. Issue of debenture shall not be made for the acquisition of shares or providing loan to any issuer belonging to the same group.

Complying with the listing agreement:

  1. The issuer willing to list its debt securities must comply with the listing agreement. Listing agreement consists of two parts “PART A” where the equity shares of the company are listed and “PART B” where equity shares of the company is not listed. The issuer shall be bounded with the covenant The issuer will not be liable to follow the covenant which is not related to the issue of debt securities in Equity Listing agreement. The issuer who has already submitted the disclosures to the exchange or SEBI or any other authority shall not be required to resubmit any such information as per listing agreement.
  2. The issuer must whether the request is made or not must forward the following to Debenture trustee:
    1. A copy of Statutory auditor and Directors annual report, Balance sheet and Profit & Loss account and of all periodical special reports at the same time as they are been issued.
    2. Copy of the resolutions, notices and circulars related to new issue of the debt securities at the same time that are sent to the shareholders/holders.
    3. A copy of all the notices, call letters, circulars, proceedings etc of the meeting of debt security holders at the same time as they are sent to the holders in debt securities or advertised in the media.
    4. A half yearly certificate regarding maintenance of 100% assets cover in respect of listed debt security by either chartered secretary or chartered accountant along with half yearly financial results. Submission of half-yearly certificate is not required if the issuer is the BANK or NBFC registered with SEBI or where bonds are secured by the Government guarantee.
  3. Issuer must provide information relating to the books of accounts as called by the

debenture trustee.

  1. In the half yearly/annual results issuer shall separately mention below the Earning per share the debt service coverage ratio and interest service coverage ration. The same is not mandatory to Bank or NBFC issuers registered with RBI.
  2. The Issuer must maintain 100% assets cover for the listed debt securities to discharge the principal amount at all times for the debt securities and disclose the same in half yearly basis and in its annual financial statements to the extend of security created.
  3. The Issuer must sent to the stock exchange attested by the trustees the following:
    1. Credit rating
    2. Assets cover available
    3. Debt-equity ratio
    4. Previous due date for the payment of interest/principal and whether the same has been paid or not and
    5. Next due date for the payment of interest /principal

Issuer needs to comply to the other norms relating to dematerialsation and interest payamnet as per listing agreement norms.

Listing fees

The listing fees depend on the issue size:

Particulars

Amount (Rs.)

Initial Listing Fees

7,500

Annual Listing Fees
Issue size:

Of Rs.1 crore

2,100

Above Rs.1 crore and up to Rs.5 crores

4,200

Above Rs.5 crores and up to Rs.10 crores

7,000

Above Rs.10 crores and up to Rs.20 crores

14,000

Above Rs.20 crores and up to Rs.50 crores

21,000

Above Rs.50 crores

35,000


Issuers which have applied for listing of issue size more than Rs. 50 crores would be charged an additional listing fees of Rs. 700 for every increase of Rs. 5 crores or part thereof in the issue size (in Rs.) subject to a maximum of Rs. 50,000/-.
Annual listing fee payable by an Issuer is limited to a maximum of Rs. 7.50 lacs.

Debenture with conversion option: The issuer can issue debentures with conversion option, for which issuer may comply with “Public companies (Terms of Issue of Debentures and Raising of Loans with option to convert such Debentures or Loans into Shares) Rules, 1977”.

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