GUIDELINES FOR ISSUE OF DEBT INSTRUMENTS
10.0 A company offering Convertible/ Non Convertible debt instruments through an offer document, shall comply with the following provisions in addition to the relevant provisions contained in other chapter of these guidelines.
10.1 Requirement of credit rating
10.1.1 No public or rights issue of debt instruments (including convertible instruments) in respect of their maturity or conversion period shall be made unless credit rating from a credit rating agency has been obtained and disclosed in the offer document.
10.1.2 For a public / rights issue of debt security of issue greater than or equal to Rs.100 crores two ratings from two different credit rating agencies shall be obtained.
10.1.3 Where credit rating is obtained from more than one credit rating agencies, al the credit rating/s, including the unaccepted credit ratings, shall be disclosed.
10.1.4 All the credit ratings obtained during the three (3) years preceding the public or rights issue of debt instrument (including convertible instruments) for any listed security of the issuer company shall be disclosed in the offer document.
10.2 Requirement in respect of Debenture Trustee
10.2.1 In case of issue of debenture with maturity of more than 18 months, the issuer shall appoint a Debenture Trustee.
10.2.2 The names of the debenture trustees must be stated in the offer document.
10.2.3 A trust deed shall be executed by the issuer company in favour of the debenture trustees within six months of the closure of the issue.
10.2.4 Trustees to the debenture issue shall be vested with the requisite powers for protecting the interest of debenture holders including a right to appoint a nominee director on the Board of the company in consultation with institutional debenture holders.
10.2.5 The merchant banker shall, along with draft offer document, file with Board, certificates from their bankers that the assets on which security is to be created are free from any encumbrances and the necessary permissions to mortgage the assets have been obtained or a No Objection Certificate from the financial institutions or banks for a second or pari passu charge in cases where assets are encumbered.
10.2.6 The debenture trustee shall ensure compliance of the following:
The expression `replenishing of funds or acquiring shares in other companies' shall mean replenishment of funds or acquiring share holdings of other companies in the same group. In other words, the company shall not issue debentures for acquisition of shares / providing loan to any company belonging to the same group. However, the company may issue equity shares for purposes of repayment of loan to or investment in companies belonging to the same group.
10.3.1 A company has to create DRR in case of issue of debenture with maturity of more than 18 months.
10.3.2 The issuer shall create DRR in accordance with the provisions given below,
(a) If debentures are issued for project finance for DRR can be created upto the date of commercial production.
(b) The DRR in respect of debentures issued for project finance may be created either in equal instalments or higher amounts if profits so permit.
(a) In case of new companies, distribution of dividend shall require approval of the trustees to the issue and the lead institution, if any.
(b) In the case of existing companies prior permission of the lead institution for declaring dividend exceeding 20% or as per the loan covenants is necessary if the company does not comply with institutional condition regarding interest and debt service coverage ratio.
(c) (i) Dividends may be distributed out of profit of particular years only after transfer of requisite amount in DRR.
(ii) If residual profits after transfer to DRR are inadequate to distribute
reasonable dividends, company may distribute dividend out of general reserve.
10.5 Redemption
10.5.1 The issuer company shall redeem the debentures as per the offer
document.
10.6 Creation of Charge
10.6.1 The security shall be created within six months from the date of issue of debentures.
Provided that if for any reasons the company fails to create security within 12 months from the date of issue of debentures the company shall be liable to pay 2% penal interest to debenture holders.
Provided further that if security is not created even after 18 months, a meeting of the debenture holders shall be called within 21 days to explain the reasons thereof and the date by which the security shall be created.
10.6.2 If the issuing company proposes to create a charge for debentures of maturity of less than 18 months, it shall file with Registrar of Companies particulars of charge under the Companies Act.
Provided that, where no charge is to be created on such debentures, the issuer company shall ensure compliance with the provisions of the Companies (Acceptance of Deposits) Rules, 1975, as, unsecured debentures / bonds are treated as "deposits" for purposes of these rules.
10.6.3 The proposal to create a charge or otherwise in respect of such debentures, may be disclosed in the offer document along with its implications.
10.7 Requirement of letter of option
10.7.1 Filing of letter of option
A letter of option containing disclosures with regard to credit rating, debenture holder resolution, option for conversion, justification for conversion price and such other terms which the Board may prescribe from time to time shall be filed with the Board through an eligible Merchant Banker, in the following cases:
10.7.1.1 In case of Roll over of Non Convertible portions of Partly Convertible Debentures(PCDs)/ Non Convertible Debentures (NCDs).
10.7.1.2 In case of conversion of instruments (PCDs/FCDs,etc.) into equity capital
Provided that where issues are made and cap price with justification thereon, is fixed beforehand in respect of any instruments by the issuer and disclosed to the investors before issue, it will not be necessary to give option to the instrument holder for converting the instruments into equity capital within the cap price.
such holders of debentures, who do not give such consent, shall be given an option to get the convertible portion of debentures redeemed or repurchased by the company at a price, which shall not be less than face value of the debentures.
c) where the consent from the Controller of Capital Issues stipulates cap price for conversion of FCDs / PCDs, the board of the Company may determine the price at which the debentures may be converted.
Provided that options to debentures / other instrument holders for conversion into equity not required where the consent from the Controller of Capital Issues stipulates cap price for conversion of FCDs and PCDs and the cap price has been disclosed to the investors before subscription is made.
Such conversions shall be optional for acceptance on the part of individuals debenture holders.
The dissenting debenture holders shall have the right to continue as debenture holders if the terms of conversions are not acceptable to them.
iii) Where issue of PCDs and FCDs is made pursuant to the consent given by the Controller of Capital Issues and the consent specifies the timing of conversion but the price of conversion of PCDs / FCDs is to be determined at a later date, the following shall be complied with:-
a) the consent of the shareholders is to be obtained only for the purposes of fixing the price of conversion and not for the pre-poning and postponing the timing of the conversion approved by CCI.
10.8 Other requirements
10.8.1 No company shall issue of FCDs having a conversion period of more than 36 months, unless conversion is made optional with "put" and "call" option.
Sub-clause (a) shall not apply to the issue of fully convertible debentures providing conversion within a period of eighteen months.
10.9 Additional Disclosures in respect of debentures
The offer document shall contain:-