On October 13, 2020, the Securities and Exchange Board of India (“SEBI”) issued a circular standardizing the procedure to be followed by debenture trustee(s) (“DT(s)”) in case of default by issuers of listed debt securities (“Circular”). This Circular is applicable to all issuers who have their debt securities, or propose to have their debt securities, listed as well as all DTs registered with SEBI.
Under the SEBI (Listing Obligations and Disclosure Requirements), 2015, a ‘default’ has been defined as non-payment of the interest or principal amount in full on the pre-agreed date, which shall be recognized at the first instance of delay in the servicing of any interest or principal on debt.
In view of the fact that multiple ISINs may have been issued under the same information memorandum (“IM”) or a single ISIN may have been split across multiple IMs, the Circular has clarified that an ‘event of default’ shall be reckoned at the ISIN level since all terms and conditions of issuance of security are same under a single ISIN even though they may have been issued under multiple IMs.
The Reserve Bank of India (“RBI”) had, on June 7, 2019, issued the RBI (Prudential Framework for Resolution of Stressed Assets) Directions 2019 (“RBI Directions”). In terms of the RBI Directions, investors in debt securities, being financial creditors, may be approached by other lenders of the issuer to sign an ICA in line with the RBI Directions.
As the resolution plan (“RP”) under the ICA may involve restructuring, including roll-over of debt securities requiring consent of investors, the process for seeking consent for enforcement of security/ entering into the ICA shall be as follows:
The consent of the majority of investors shall mean the approval of not less than 75% (seventy five percent) of the investors by value of the outstanding debt and 60% (sixty percent) of the investors by number at the ISIN level.
As per the Circular, DTs may sign the ICA and consider the RP on behalf of the investors upon compliance of the following:
DTs are required to ensure that the conditions pertaining to exiting the ICA as aforesaid are suitably incorporated in the ICA before signing the ICA.
Please find a copy of the Circular here.
This update has been contributed by Aastha (Partner) and Radhika Kothari (Associate).
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