May 20, 2022
Summary of the circulars issued by SEBI on 19/05/2022
Revision in timeline w.r.t Rights Issue under LODR regulations
Through this circular, SEBI has revised the minimum time period between the closure of trading in Right Entitlements(REs) on stock exchanges and closure of the Rights Issue to 3 working days (as against the earlier requirement of 4 days), to accommodate trading holidays. This circular shall be applicable for all Rights/Fast Track Rights Issues with immediate effect.
Revision to security cover certificate format, covenant monitoring guidelines and filing timelines under LODR Regulations.
SEBI vide its circulars dated 12/11/2020 and 11/10/2020 specified format of security cover certificate, periodical monitoring and disclosures by Debenture Trustee(s) and the requirement of creation of “Recovery Expense Fund” (REF), which was applicable to issuers of Non-Convertible Securities (NCS), Securitised Debt Instruments, Security Receipts, Municipal Debt Securities or Commercial Papers, the Debenture Trustees (DTs) and the Stock Exchanges.
SEBI has now amended certain provisions under these circulars. Key highlights of this circular are as follows:
A. Security Cover Certificate – Format and Guidelines for Preparation:
1. Format of Security Cover certificate is revised w.e.f 01/10/2022 to provide a holistic picture of all the borrowings and the status of encumbrance on the assets of the listed entity.
2. Statutory auditor of the listed entity shall certify the book values of the assets in the security cover certificate, along with the Unique Document Identification Number(UDIN) generated in the manner prescribed by the relevant regulatory authority. The same shall be applicable to the certificates issued by the empaneled independent CAs engaged by the DT.
3. Where there is no regulatory guideline on the frequency of valuation of a specific asset class, it shall be carried out on a quarterly basis.
4. Detailed guidelines are provided w.r.t. obligations of listed entity in cases where third party/ subsidiary/ group/ holding company assets being offered as underlying security.
B. Monitoring of Covenants by DTs w.e.f 01/10/2022.
1. Listed entity shall furnish the compliance status with respect to financial covenants of the listed debt securities certified by statutory auditor of listed entity, on a quarterly basis to DTs.
2. DTs to establish board approved internal policies with respect to proactive and effective monitoring of breach of covenants. Guidance note on list of covenants to be monitored is annexed to this circular.
3. DTs shall independently monitor any breach of covenants from continuous monitoring of any public disclosure on Stock Exchange(s), company filings, news articles in electronic/ print media or any information publicly available apart from the information submitted by the issuer company.
C. Revision in timelines of Stock Exchange filings by DTs
1. To file the security cover certificate, make website disclosure of the same and file the quarterly compliance report within 75 days from the end of each quarter except last quarter of FY, which has to be filed within 90 days from the end of FY (as against the earlier requirement to submit within 60 days from the end of each quarter).
2. To file the valuation report and title search report to the Stock Exchange(s) once in three years within 75 days from the end of the financial year, as against the earlier requirement to submit within 75 days from the end of each FY.
3. Half- yearly compliance report and details of other activities carried out by DTs to be filed within 60 days (instead of 30 days) from the end of each half year.
4. DTs to notify stock exchanges within 48 hours of issuance of No-objection Certificate (NOC)/no-dues certificate/consent/permission to the listed entity w.r.t debt securities or further borrowings and in case of breach of minimum security cover maintained by the listed entity.
D. Clarification on the scope of Recovery Expense Fund (REF):
1. It is clarified that the purpose of the creation of REF is to enable DTs initiate legal proceedings against the defaulting issuer and is, therefore, applicable for both secured as well as unsecured issuances.
2. DTs shall take confirmation from Designated Stock Exchange(s) or any other independent source in writing regarding the creation of REF by the listed entity and shall not rely solely upon the communication by the listed entity.
These circulars are integrated in our free to use website ca2013.com.