Brief Overview:
The nature of business activities that a debenture trustee (“DT”) can carry out will get restricted going forward.
Technical Details:
1) Hiving Off Unregulated Activities: DTs carrying out activities, other than those regulated by any Financial Sector Regulator, or any other authority as SEBI may specify, shall hive off such activities to a separate legal entity, which may not use the brand or corporate name of DT after a period of 1 year, i.e. Sunset Period. It is hoped that DTs are allowed to act as such for unlisted issuances (see (v) below!).
2) Cross-Default: At present ‘Cross-Default’ is defined in every debenture trust deed (“DTD”), resulting in differential understanding on a market level. SEBI is seeking to insert a standard definition in the regulations.
3) Decision Making in Shared Security Interest: In case of shared security interest across ISINs on pari-passu basis, it is proposed to obtain consent from the aggregate of debenture holders across ISINs. This proposal is only with respect of prospective issuance, with an option to debenture holders to an outstanding issuance.
4) Standardization of DTD: A standardised DTD for secured issuances of non-convertible debentures is to be put in place by providing a model DTD. In case of deviations from the model DTD, a schedule incorporating the deviations from the model DTD will be required.
5) Regulation triggered by Activity: Only Trustee’s carrying out SEBI regulated activity, need to be registered as DTs under DT Regulations. A moot issue will be whether issuance of unlisted securities will be covered.
6) Use of SEBI Goodwill: DTs while undertaking activities other than SEBI-regulated activities, shall not project themselves as SEBI registered entities. Moreover, DTs must specify the relevant regulator, and rules / regulations overseeing such activities.
The consultation paper for amendments to the SEBI (Debenture Trustees) Regulations, 1993 (“DT Regulations”) was issued by SEBI on November 04, 2024, and the same is open to accept comments until November 18, 2024.
Key Takeaway:
Some of the proposed changes are prescriptive in nature. It is hoped that the actual amendments do provide some latitude; especially as regards unlisted debentures.
One can expect DTs being barred from acting as trustees for private trusts and even offering estate planning related services.
For further details, please see:
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