New debt disclosure norms to improve transparency, say fund managers

The new disclosure framework for listed debt securities will help improve transparency and could potentially reduce the information asymmetry among different sets of debenture holders, said fund managers.

The market regulator Securities and Exchange Board of India (Sebi) on Monday introduced a couple of critical changes to the disclosure regime directing the so-called debenture trustees (DTs) to disclose their compensation structure, maintain a calendar of interest payments and redemptions and introduce additional covenants in case of privately placed debts.

"The intention of Sebi seems to be to plug information gaps between different set of debenture holders. However, more clarity is needed. It would help if all set of investors come to know when there is a default," said a debt fund manager, requesting anonymity.

The Sebi, in its circular, said that issuer of the debt securities will have to share details of debenture holders with the DT at the time of allotment and by seventh working day of every following month, "so that DTs keep their records updated and communicate effectively with debenture holders, especially in situations where events of default are triggered".

"The disclosure norms will help give more visibility to the new investor on track-record of the issuer in making timely payments. Also, the investor will have some clarity on the upcoming redemptions for the borrower," added Dwijendra Srivastava, chief investment officer (debt) at Sundaram Mutual Fund (MF).

Further, Sebi has given directions that would require DTs to update status of payment (security wise) against issuers not later than one day from the due date. "In case the payment is made with a delay by the issuer, DTs shall update the calendar specifying the date of such payment, with a remark ‘delayed payment’."

Legal experts said the move to specify penalties for default in payment or delay in listing in the term-sheet will bring in more legal sanctity.

“The clause pertaining to additional interest payments for default or delay in listing have been there from the start. However, mentioning them in the term sheet will bring in more transparency and set a floor coupon rate,” said a lawyer.

Sebi has said the issue details in the summary term-sheet for an agreement between the issuer and investor will have to include additional covenants that state “in case of default in payment of interest and/or principal redemption on the due dates, additional interest of at least at the rate of 2 per cent per annum over the coupon rate shall be payable by the company for the defaulting period.”