Sebi strengthens debenture trustees role to protect investors

Sebi strengthens debenture trustees role to protect investors

With an aim to protect the interest of investors, capital markets regulator Sebi has strengthened the role of debenture trustees asking them to independently evaluate and monitor the asset cover.

The decision comes as several defaults were seen in the debt markets.

To give this effect, Sebi has amended debenture trustee norms and ILDS (Issue and Listing of Debt Securities Regulations), the regulator said in two separate notifications on Thursday.

Under the new norms, debenture trustees (DTs) would exercise independent due diligence of the assets on which charge is being created.

Before creating a charge on the security for the debentures, DTs will exercise independent due diligence to ensure that such security is free from any encumbrance or that it has obtained the necessary consent from other charge-holders if the security has an existing charge, Securities and Exchange Board of India (Sebi) said.

Also, DT would carry out monitoring of the asset cover and obtain mandatory certificate from the statutory auditor on a half-yearly basis.

In addition, they will take required action by convening the meeting of debenture holders for enforcement of security, joining the inter-creditor agreement under the framework specified by the Reserve Bank of India (RBI).

Further, the issuer company will create a recovery expense fund at the time of issuance of debt securities that may be utilised by DT in the event of default for taking appropriate legal action to enforce the security.