After a series of defaults and delayed repayments by companies like IL&FS, Jet Airways and the Essel group and the liquidity crisis in the non-banking financial companies (NBFCs) sector, the Securities and Exchange Board of India (Sebi) has stepped in to tighten the disclosure norms for corporate bonds by directing debenture trustees (DTs) to disclose the full details, including interest/ redemptions and status of payment in a bid to bring in more transparency.
However, Sebi has remained silent on disclosure on defaults of bank loans by listed corporates. The market regulator has also imposed a 2 per cent additional interest on companies that fail to pay their debt investors either due interest or principal on the scheduled date.
In a circular issued on Moday, Sebi had said DTs should display on their website details of interest/ redemption due to the debenture holders in respect of all issues during a financial year within 5 working days of start of financial year. DTs should also update such details for any new issues handled during the financial year within 5 days of closure of the Issue.
According to the Sebi, DTs should also update the status of payment against such issuers not later than 1 day from the due date. In case the payment is made with a delay by the issuer, DTs should update the calendar specifying the date of such payment, with a remark ‘delayed payment’.
DTs will also have to disclose compensation agreements with their clients. “For privately placed issues, issuers must include covenants providing for penalties in case of default on interest payment/principal redemption (2 per cent per annum over the coupon rate for the default period) and delay in listing of over 20 days post-allotment (1 per cent per annum over the coupon rate from the expiry of 30 days from the deemed date of allotment until listing),” Sebi said.
Issuers should henceforth forward the details of debenture holders to the DT at the time of allotment and thereafter by the seventh working day of every next month in order to enable DTs to keep their records updated and to communicate effectively with the debenture holders, especially in situations where events of default are triggered, Sebi said.
In the case of delay in listing of the debt securities beyond 20 days from the deemed date of allotment, the company should pay penal interest of at least one per cent per annum over the coupon rate from the expiry of 30 days from the deemed date of allotment till the listing of such debt securities to the investor.
However, the latest Sebi directive has not sought disclosures on loan defaults by listed entities. In August 2017, the Sebi had asked listed companies to disclose details on defaults of loan payment from banks and other financial intuitions to the public within one working day. The Sebi directive to disclose loan defaults ran contrary to the position of banking regulator, Reserve Bank of India, which has been refusing to name the defaulters.
The Sebi directive which was to come into force from October 1, 2017 was quietly buried following opposition from the corporate sector. The RBI was also against making the names of defaulters public.
Currently, investors and public are in the dark about defaults by companies and they realise it only when the valuations go down. Some of the top defaulters are now listed on the stock exchanges. The RBI has refused to make public the list of loan defaulters with public banks despite a Supreme Court order to make this information public.
“Corporates in India are even primarily reliant on loans from the banking sector. Many banks are presently under considerable stress on account of large loans to the corporate sector turning into stressed assets, non-performing assets (NPAs). Some firms have also been taken up for initiation of insolvency and bankruptcy proceedings,” Sebi had then said.