Capital market regulator Securities and Exchange Board of India (Sebi) on Thursday eased norms for security, or the asset cover, required for issuing secured bonds. Sebi said that issuers will have to maintain a 100% asset cover that is sufficient to discharge the principal amount at all times for their debt securities offerings.
In May, Sebi had decided that companies raising money through ‘secured’ bonds and debentures should ensure that the papers issued are fully backed by assets on which a charge has been created up to 100%. Some issuers, such as housing finance companies and other companies, which normally issue partly secured debt

securities faced problems in raising funds, as companies usually sold debentures with an underlying security that was only worth a fraction of the amount raised. The charge was created on a portion of assets and the rest was secured by way of negative lien. But the new rule specifies only asset cover.

According to industry players, subsequent to the new rule, issuers will be able to issue bonds that are either unsecured, partly or fully secured. Sebi has also enhanced disclosures to investors by issuers. “The periodic disclosures to the stock exchanges will now require disclosure of the extent and nature of security created and maintained,” the regulator said.

Compared to the half-yearly certification on security cover for listed secured debt securities, the amended listing agreement provides for “submission of such certificates regarding maintenance of 100% asset cover, and the time limit of submission in respect of the last half year has been aligned with the option provided for submission of annual audited results at a later date.

Besides, banks, non-banking finance companies (NBFCs), issuers of government guaranteed bonds have been exempted from submitting such certificates. Issuers will also be required to furnish a statement of deviations in use of issue proceeds to the stock exchange on a half-yearly basis, besides publishing in the newspapers along with the half-yearly financial results.

On submission of financial statements, Sebi said: “Issuers would now have to publish to the exchange either audited half yearly financial statements or unaudited half yearly financial statements subject to a limited review within 45 days from the end of the half year.” Issuers will also have to deposit 1% of the issue proceeds with the exchange till all the investor complaints are disbursed off.

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September 2021