SEBI Circular on enhanced guidelines for debenture trustees and listed issuer companies on security creation and initial due diligence – 04th August, 2022

SEBI, vide its circular dated 04 th August, 2022 provided revised requirements relating to encumbrance, creation of security and related due diligence by DTs on receiving feedback from market participants on the aspects of due diligence and security creation. This circular is in reference with SEBI Board meeting dated 28 th September, 2020 where SEBI approved changes to the regulatory framework relating to debenture trustees (DTs), enhancing their role. Resultant amendments were made in the SEBI (Debenture Trustees) Regulations, 1993, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015and erstwhile SEBI (Issue and Listing of Debt Securities) Regulations, 20081, pursuant to which a circular on the creation of security and due diligence by DTs was issued.

A. Manner of change in security/ creation of additional security/ conversion of unsecured to secured in case of already listed non-convertible debt securities: Regulation 59 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) provides for a change in terms of listed non-convertible debt securities. A change in the structure of non-convertible debt securities, inter-alia, may include: A change in security, Creation of additional security in case of already secured debt securities or Creation of security in case of unsecured debt securities. Accordingly, in order to harmonize the process of creation of security pursuant to listing, the following directions are issued: Before initiating due diligence, a DT and the listed entity shall enter into an amended debenture trust agreement to incorporate the obligations arising out of provisions of para 4 to 7 of SEBI Circular dated 03 rd November, 2020 and obligations prescribed in terms of SEBI Circular dated 12 th November, 2020 and SEBI Circular SEBI dated 19 th May, 2022 for continuous monitoring and any other stipulations of SEBI from time to time with respect to security creation, initial due diligence and continuous monitoring by DTs. A DT shall carry out due diligence for change in security, creation of security/ additional security in the manner as prescribed in para 4 to para 7 of SEBI Circular dated 03 rd November, 2020. Pursuant to the initial due diligence carried out as per para 4-7 of SEBI Circular dated 03 rd November, 2020, the DT shall issue a no-objection certificate (NOC) to issuer company for going ahead with proposed change in the structure/ creation of security. Thereaft