The market watchdog Securities and Exchange Board of India (Sebi) on October 22, 2020 issued a circular to the issuers of the listed debt securities to create a Recovery Expense Fund (REF).
This move will enable the Debenture Trustees (DTs) to take prompt action when it comes to taking a decision in case of ‘default’ in listed debt securities. For this purpose, a REF shall be created which would be used in the manner as decided in the meeting of the debenture holders of debt securities.
“The issuer proposing to list debt securities shall deposit an amount equal to 0.01 per cent of the issue size subject to a maximum of Rs 25 lakhs per issuer towards REF with the ‘Designated Stock Exchange’, as identified and disclosed in its Offer Document/ Information Memorandum,” Sebi says.
The REF should be created in a manner proposed by the Sebi. The debt issuer should deposit cash or cash equivalent including bank guarantees towards contribution to this fund at the time of making the application for listing of debt securities.
The debt issuer should also ensure that the bank guarantee remains valid for a period of six months post the maturity date of the listed debt security. “The issuer shall keep the bank guarantee in force and renew the bank guarantee at least seven working days before its expiry, failing which the Designated Stock Exchange shall invoke such bank guarantee,” notes Sebi.
That said, in the event of the default, the DTs should obtain the consent of the holders of debt securities for enforcement of security and should also inform the same to the designated stock exchanges. The designated stock exchange will then release the amount lying in the REF to the DTs within five working days of receipt of such intimation. The availability of this circular would come into force with effect from 1st January 2020.
DT’s major role between an issuer company and the debenture holders (investors) is to safeguard the property on behalf of the issuer company. Earlier this month, Sebi had issued two circulars on October 8 and 13, to strengthen and safeguard the interests of the DTs and debenture holders of listed debt issues.