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SEBI GUIDELINES
FOR DEBENTURES
Prepared by
HARIKRISHNAN N R
T4 MBA
SEBI
The Securities and Exchange Board of India (SEBI) is the
designated regulatory body for the finance and investment
markets in India. The board plays a vital role in maintaining
stable and efficient financial and investment markets by
creating and enforcing effective regulation in India's financial
marketplace.
Debenture
• A debenture is a medium to long-term debt format that
is used by large companies to borrow money.
• Debentures are typically loans that are repayable on a
fixed date, but some debentures are irredeemable
securities (these are sometimes called perpetual
bonds), which means that they do not have a fixed
date of expected return of the funds.
Convertible debentures
Convertible bonds or bonds that can be converted into equity shares of
the issuing company after a predetermined period of time. Convertible
bonds are more attractive to investors since the bonds have the ability to
convert and also attractive to companies since they typically have lower
interest rates than non-convertible corporate bonds.
Non-convertible debentures
Regular debentures which cannot be converted into equity shares of the
liable company. Since they are not able to convert, they usually carry
higher interest rates than convertible debentures.
SEBI GUIDELINES FOR DEBENTURES
1. Credit Rating
2. Disclosure
3. Debenture Trustee
4. Debenture Redemption Reserve(DRR)
5. Conversion
6. Listing
Credit Rating
Debt instruments should be rated by a Credit Rating
Agency and the same shall be disclosed in the offer
document. If the issue is greater than or equal to 100
crores two ratings from two different credit rating
agencies shall be obtained.
CREDIT RATING AGENCIES IN INDIA
CRISIL - Credit Rating Information Services of India Ltd.
ICRA - Investment Information and Credit Rating Agency.
CARE – Credit Analysis and Research Ltd.
Disclosure
• Debt-equity ratio, servicing behaviour of existing debentures,
payment of due interest on due dates on loans and debentures and
No- Objection Certificate from a banker.
• Debt-equity ratio in issue of debentures should not exceed 2:1.
But this condition will be relaxed for capital intensive projects.
Debenture Trustee
• It is mandatory to appoint Debenture Trustees for debenture with maturity
of more than 18 months and their names should be stated in the offer
document.
• Trustees who are appointed to safeguard the interest of debenture holders
are called ‘Denture trustees’. They are appointed before the issue of
debenture by a company.
• They can call for periodical report from the company. Inspection of books
of accounts, records, registration of the company and the trust property.
• Inform the SEBI immediately of any breach of trust deed /provisions of
law.
Debenture Redemption Reserve(DRR)
A debenture redemption reserve is a provision that states that any
Indian corporation that issues debentures must create a debenture
redemption service to protect investors against the possibility of
default by the company.
If a company does not create a reserve within 12 months of issuing
the debentures, they will be required to pay 2% interest in penalty
to the debenture holders.
Conversion
Issue of FCDs having a conversion period more than 36
months will not be permissible, unless conversion is
made optional with “Put” and “Call” option
“Put” and “Call” option
Listing
SEBI permits listing of debt instruments before equity
provided the rating of the instrument is not below
minimum rating of ‘A’ or equivalent
THANK YOU

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Sebi guidelines for debentures

  • 1. SEBI GUIDELINES FOR DEBENTURES Prepared by HARIKRISHNAN N R T4 MBA
  • 2. SEBI The Securities and Exchange Board of India (SEBI) is the designated regulatory body for the finance and investment markets in India. The board plays a vital role in maintaining stable and efficient financial and investment markets by creating and enforcing effective regulation in India's financial marketplace.
  • 3. Debenture • A debenture is a medium to long-term debt format that is used by large companies to borrow money. • Debentures are typically loans that are repayable on a fixed date, but some debentures are irredeemable securities (these are sometimes called perpetual bonds), which means that they do not have a fixed date of expected return of the funds.
  • 4. Convertible debentures Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. Convertible bonds are more attractive to investors since the bonds have the ability to convert and also attractive to companies since they typically have lower interest rates than non-convertible corporate bonds. Non-convertible debentures Regular debentures which cannot be converted into equity shares of the liable company. Since they are not able to convert, they usually carry higher interest rates than convertible debentures.
  • 5. SEBI GUIDELINES FOR DEBENTURES 1. Credit Rating 2. Disclosure 3. Debenture Trustee 4. Debenture Redemption Reserve(DRR) 5. Conversion 6. Listing
  • 6. Credit Rating Debt instruments should be rated by a Credit Rating Agency and the same shall be disclosed in the offer document. If the issue is greater than or equal to 100 crores two ratings from two different credit rating agencies shall be obtained.
  • 7. CREDIT RATING AGENCIES IN INDIA CRISIL - Credit Rating Information Services of India Ltd. ICRA - Investment Information and Credit Rating Agency. CARE – Credit Analysis and Research Ltd.
  • 8. Disclosure • Debt-equity ratio, servicing behaviour of existing debentures, payment of due interest on due dates on loans and debentures and No- Objection Certificate from a banker. • Debt-equity ratio in issue of debentures should not exceed 2:1. But this condition will be relaxed for capital intensive projects.
  • 9. Debenture Trustee • It is mandatory to appoint Debenture Trustees for debenture with maturity of more than 18 months and their names should be stated in the offer document. • Trustees who are appointed to safeguard the interest of debenture holders are called ‘Denture trustees’. They are appointed before the issue of debenture by a company. • They can call for periodical report from the company. Inspection of books of accounts, records, registration of the company and the trust property. • Inform the SEBI immediately of any breach of trust deed /provisions of law.
  • 10. Debenture Redemption Reserve(DRR) A debenture redemption reserve is a provision that states that any Indian corporation that issues debentures must create a debenture redemption service to protect investors against the possibility of default by the company. If a company does not create a reserve within 12 months of issuing the debentures, they will be required to pay 2% interest in penalty to the debenture holders.
  • 11. Conversion Issue of FCDs having a conversion period more than 36 months will not be permissible, unless conversion is made optional with “Put” and “Call” option
  • 13. Listing SEBI permits listing of debt instruments before equity provided the rating of the instrument is not below minimum rating of ‘A’ or equivalent