Issue and listing of non – convertible debt securities, whether issued to the public or privately placed, are required to be made in accordance with the provisions of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
PURPOSE OF ISSUE
An issuer can make an initial public offer of convertible debt instruments without making a prior public issue of its equity shares and listing thereof. No company can make an issue of convertible debt instruments unless credit rating is obtained from one or more agencies.
The company is required to give the following details of credit ratings in case of a public issue or rights issue of convertible debt instruments:
(i) The names of all the credit rating agencies from which credit rating including unaccepted rating has been obtained for the issue of convertible debt instruments.
(ii) All the credit ratings obtained during three years prior to the filing the offer document for any of the issuer‟s listed convertible debt instruments at the time of accessing the market through a convertible debt instrument.
CREATION OF CHARGE
If the issuer proposes to create a charge or security on its assets in respect of secured convertible debt instruments, it is required to ensure that:
(i) Such assets are sufficient to discharge the principal amount at all times;
(ii) Such assets are free from any encumbrance;
(iii) Where security is already created on such assets in favour of financial institutions or banks or the issue of convertible debt instruments is proposed to be secured by creation of security on a leasehold land, the consent of such financial institution, bank or lessor for a second or paripassu charge has been obtained and submitted to the debenture trustee before the opening of the issue;
(iv) The security/asset cover is required to be arrived at after reduction of the liabilities having a first/prior charge, in case the convertible debt instruments are secured by a second or subsequent charge.
APPOINTMENT OF DEBENTURE TRUSTEE: The company is required to appoint one or more debenture trustees.
DEBENTURE REDEMPTION RESERVE: The company is required to create a debenture redemption reserve.
Conversion of Optionally Convertible Debt Instruments into Equity Share Capital
(i) No issuer can convert its optionally convertible debt instruments into equity shares unless the holders of such convertible debt instruments have sent their positive consent to the issuer and non – receipt of reply to any notice sent by the issuer for this purpose is not construed as consent for conversion of any convertible debt instruments.
(ii) Where the value of the convertible portion of any convertible debt instruments issued by a listed issuer exceeds 50 lakh rupees and the issuer has not determined the conversion price of such convertible debt instruments at the time of making the issue, the holders of such convertible debt instruments are required to be given the option of not converting the convertible portion into equity shares.
Where the upper limit on the price of such convertible debt instruments and justification thereon is determined and disclosed to the investors at the time of making the issue, it is not necessary to give such option to the holders of the convertible debt instruments for converting the convertible portion into equity share capital within the said upper limit.
(iii) Where an option is to be given to the holders of the convertible debt instruments in terms of Para (2) and if one or more of such holders do not exercise.
The issuer is required to ensure that necessary cooperation with the credit rating agency(ies) has been extended in providing true and adequate information till the debt obligations in respect of the instrument are outstanding.
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