Revised Timelines for Pre- Issue and Post- Issue Actions Under Revamped Listed Debenture Regime

On October 08, 2020, the Securities and Exchange Board of India (“SEBI”) notified amendments to its earlier regulations governing the listed debenture regime, namely, the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (“ILDS Regulations”) and the SEBI (Debenture Trustees) Regulations, 1993. These amendments follow the circular dated October 05, 2020 (SEBI/HO/DDHS/CIR/P/2020/198) which seeks to standardize certain timelines for the private placement of securities (“Timelines Circular”). Subsequently, on November 03, 2020, SEBI issued a circular (SEBI/HO/MIRSD/CRADT/CIR/P/2020/218), inter-alia, in relation to the creation of security for listed debentures (“Debenture Trustee Circular”). The salient features of these circulars are summarized as follows: 

Due-diligence certificate from debenture trustee 

Effective January 01, 2021, prior to issuance of listed debt securities, the concerned debenture trustee is required to furnish the proposed issuer with a ‘due-diligence certificate’ as per the format specified in Annexure A of the Debenture Trustee Circular. This certificate is also required to be disclosed in/annexed to the offer document or private placement memorandum/information memorandum submitted to the designated stock exchange.  

The Debenture Trustee Circular places obligations on the debenture trustee to carry out independent due diligence for the creation of security as also to ensure that the assets for the creation of the said security are adequate for the proposed issue of listed debt securities.In order to enable the debenture trustee to conduct such diligence, the Debenture Trustee Circular mandates that, at the time of entry into the debenture trustee agreement, the issuer provides all such information and/or documents as may be required by the debenture trustee, including the nature of assets (encumbered or unencumbered) proposed to be secured and the type of guarantee (personal or corporate) proposed to be issued.  

Debenture trustees will also be required to maintain records and documents pertaining to such due diligence for a minimum period of 5 (five) years from the date of redemption of the listed debt securities. 

Execution of debenture trust deed and creation of security 

Effective January 01, 2021, the Debenture Trustee Circular mandates execution of the debenture trust deed with the debenture trustee prior to making any application to the concerned stock exchange for the listing of debt securities. That the timeline for execution of trust deeds under the Companies (Share Capital and Debentures) Rules, 2014, continues to be 60 (sixty) days from the allotment of debentures is noteworthy. SEBI will therefore need to clarify the conflicting timelines, given that the revised timeline under the Debenture Trustee Circular is applicable only to listed issuances of debt while the timeline under the Companies Act, 2013 may be restricted to unlisted issuances. 

Similar to the timeline for execution of a debenture trust deed from January 01, 2021, the security set out in the information memorandum is required to be created in favour of the debenture trustee prior to making an application for the listing of the said debentures. This mandate will have a significant impact on the market, especially in the case of refinancing transactions, where, in many cases, a timeline is usually provided for the creation of charge over the security provided to the original lender to allow an exclusive charge in favour of the debenture trustee subsequent to the release of the existing charge.  Many market participants are approaching SEBI to provide clarity on this impasse, as it is not clear whether all/complete security (so proposed to secure an issuance) needs to be created upfront, as specified above .  

Receipt of funds, allotment of securities, listing application, etc. 

As per the Timelines Circular,  timelines for completion of the following post-issue actions are effective as of December 01, 2020: 

Additionally, depositories can now activate the ISINs (International Securities Identification Numbers) of debt securities issued on private placement basis only after the concerned stock exchange has accorded approval for listing of such debentures.  

It is pertinent to note here that, while the timeline specified for submission of a listing application (as specified in the Timelines Circular) has been notified prior to the amendments to the ILDS Regulations, the ILDS Regulations have not been amended to reflect this timeline. Under the ILDS Regulations, the issuer is currently accorded a timeline of 15 (fifteen) days from the date of allotment of debt securities to forward a listing application to the stock exchange. The market still awaits SEBI’s clarifications in respect of this dichotomy in the Timelines Circular and the ILDS Regulations. 

The aforementioned circulars, along with the recent amendments, suggest a paradigm shift in the existing regime governing listed debt issuances, including the imposition of a more vigilant approach on debenture trustees. In addition to the stated timelines, these challenges are likely to significantly increase the ‘time to market’ for listed issuances and, consequently, the availability of funding. Further, as discussed above, a few timelines need to be streamlined and made consistent across ILDS Regulations, requisite SEBI circulars, and the Companies Act, for the expected fortuitous compliance by requisite market participants.