Sebi proposes changes in debenture trustee appointment to smoothen process

To legally validate and streamline disclosure in respect of debenture trustee appointments in offer documents, markets regulator Sebi has proposed to replace the term 'consent letter' with 'debenture trustee agreement'.

The change will streamline the process for appointing debenture trustees in the issuance of securities, ensure transparency in the appointment of debenture trustees, and play a crucial role in the securities market.

In a consultation paper floated on Saturday, the markets watchdog proposed replacing the term "consent letter" with "debenture trustee agreement" in Sebi's (Issue and Listing of Non-Convertible Securities) rules or NCS regulations.

The debenture trustee agreement (DTA), which legally validates the appointment of a debenture trustee, is considered by the regulator to be more significant than the previously used term 'consent letter'.

The change will help investors make more informed decisions when investing in debentures.

Earlier, a working group noted that the issuer obtains the consent letter from the debenture trustees, prior to initiation of assignment whereas the DTA is executed between them at a later stage.

However, the consent letter does not appear to have any kind of legal sanctity, it added. Therefore, the working group agreed that the legal document that validates the appointment of the debenture trustee is the DTA and not the consent letter.

Sebi also said, "The debenture trustee agreement shall be made accessible to investors using 'QR code' in the offer document".

This digital access will allow investors to review the agreement, ensuring that they are fully informed of the trustee's role and obligations and have ease of access to critical information.

The Securities and Exchange Board of India (Sebi) has invited public comments and suggestions on the consultation paper by September 6.

The move came in response to recommendations from a working group tasked to enhance the ease of doing business in the financial sector, aligned with the objectives set by the government in the FY 2023-24 Budget.