Full cover for bonds is must, Sebi tells firms

Besides security, the issuer needs to see that charges on assets are registered

The Securities & Exchange Board of India (Sebi) has now made it compulsory for companies seeking listing of corporate and other debt instruments to provide 100 per cent security cover at all times.
Issuing the guidelines for listing agreement for debt securities on Monday, Sebi has made it clear that the 100 per cent security cover is mandatory for debt instruments to be issued by both entities  – listed or unlisted companies.  
Sebi said that “the issuer should not only create and maintain security ensuring 100 per cent security cover for listed debt securities at all times but also ensure that charges on the assets are registered.”  
Sebi wants listed companies to make minimal disclosure while seeking listing of debt instruments, whereas the unlisted companies will be required to provide detailed disclosures.  
Elaborating, the market regulator justified the listed companies to make minimal disclosure as large amount of information is already in public domain.
Debt securities include municipal bonds, corporate bonds, government bonds, certificate of deposits, and other non-convertible debt instruments.  The aforementioned guidelines were prepared by Sebi in consultation with the National Stock Exchange and the Bombay Stock Exchange.

Material developments

Further, it said that the listed companies under the equity listing agreement with bourses are required to disclose material developments on a continuous basis. In case of those companies whose shares are not listed on stock markets, it said, they will have to provide detailed disclosures but fewer than those required under the equity listing agreement.
The regulator has already notified Sebi (Issue & Listing of debt Securities) Regulations 2008, to encourage development of primary market for corporate bonds. It said that the issuer of debt instruments will have to inform the exchange about the credit rating, asset cover available, debt-equity ratio etc in a half-yearly communication.
It will also have to notify the exchange regarding expected default in timely payment of interests or redemptions in respect of debt securities. Sebi also made it clear that the securities must be allotted to the public within 30 days of the closure of the issue and in case the allotment was not made, refund orders have to be dispatched within 30 days of the closure of the issue.  
Any default in the despatch order within the time schedule, the issuer will have to pay an interest of 15 per cent per annum.
And in those cases, where the equity of the issuer was not listed on the bourses, it stated that the issuer will “not forfeit unclaimed interest and such unclaimed interest shall be transferred to the Investor Education and Protection Fund.”