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.

No company shall make a public issue or rights issue of debt instruments (whether convertible or not), unless credit rating of not less than investment grade is obtained from not less than two registered credit rating agencies and disclosed in the offer document). Where credit ratings are obtained from more than two credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed. 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.

102(No company shall issue a prospectus or a letter of offer to the public for subscription of its debentures, unless the company has appointed one or more debenture trustees for such debentures in accordance with the provisions of the Companies Act, 1956.)The names of the debenture trustees shall be stated in the Offer Documents and also in all the subsequent periodical communications sent to the debenture holders).A trust deed shall be executed by the issuer company in favour of the debenture trustees within three months of the closure of the issue.) 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.

The merchant banker shall, along with the draft offer document, file with the Board, certificates from the bankers of the Company that the assets on which the security is to be created are free from any encumbrances and the necessary permissions to mortgage the assets have been obtained or No - objection Certificate from the Financial Institutions or Banks for a second or pari passu charged in cases where assets are encumbered. The merchant banker shall also ensure that the security created is adequate to ensure 100% asset cover for the debentures.

The debenture trustee shall ensure compliance of the following:

1. It shall obtain reports from the lead bank, regarding monitoring progress of the project..

2. It shall monitor utilization of funds raised in the debenture issue.

3. Trustees shall obtain a certificate from the company's auditors:

   1. in respect of utilisation of funds during the implementation period of projects.

   2. in the case of debentures for working capital, certificate shall be obtained at the end of each accounting year.

4. Debenture issues by companies belonging to the groups for financing replenishing funds or acquiring share holding in other companies shall not be permitted.

Explanation:

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.

5. The debenture trustees shall supervise the implementation of the conditions regarding creation of security for the debentures and debenture redemption reserve.

For the redemption of the debentures issued, the company shall create debenture redemption reserve in accordance with the provisions of the Companies Act, 1956.

1. In case of the companies which have defaulted in payment of interest on debentures or redemption of debentures or in creation of security as per the terms of issue of the debentures, any distribution of dividend shall require approval of the Debenture Trustees and the Lead Institution, if any)

2. 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.

3.  

   1. Dividends may be distributed out of profit of particular years only after transfer of requisite amount in DRR.

   2. If residual profits after transfer to DRR are inadequate to distribute reasonable dividends, company may distribute dividend out of general reserve

The issuer company shall redeem the debentures as per the offer document.

1. The offer document shall specifically state the assets on which security shall be created and shall also state the ranking of the charge/s. In case of second or residual charge or subordinated obligation, the offer document shall clearly state the risks associated with such subsequent charge. The relevant consent for creation of security such as pari passu letter, consent of the lessor of the land in case of leasehold land etc. shall be obtained and submitted to the debenture trustee before opening of issue of debenture.

2. The offer document shall state the security / asset cover to be maintained. The basis for computation of the security / asset cover, the valuation methods and periodicity of such valuation shall also be disclosed. The security / asset cover shall be arrived at after reduction of the liabilities having a first / prior charge, in case the debentures are secured by a second or subsequent charge."

3. The issue proceeds shall be kept in an escrow account until the documents for creation of security as stated in the offer document, are executed.

4. 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.

5. The proposal to create a charge or otherwise in respect of such debentures, may be disclosed in the offer document along with its implications.

Where the company desires to rollover the debentures issued by it, it shall file with SEBI a copy of the notice of the resolution to be sent to the debentureholders for the purpose, through a merchant banker prior to dispatching the same to the debenture-holders. The notice shall contain disclosures with regard to credit rating, necessity for debenture-holders resolution and such other terms which SEBI may specify. Where the company desires to convert the debentures into equity shares in accordance with clause 10.7.2, it shall file with SEBI a copy of the letter of option to be sent to debenture-holders with the Board, through a merchant banker, prior to dispatching the same to the debenture-holders. The letter of option shall contain disclosures with regard to option for conversion, justification for conversion price and such other terms which SEBI may specify

The non-convertible portions of PCDs or the NCDs issued by a listed company, the value of which exceeds Rs.50 lacs, can be rolled over without change in the interest rate subject to section 121 of the Companies Act, 1956 and subject to the following conditions, if the company is not in default:

1. A resolution to this effect is passed by postal ballot, having the assent from not less than 75% of the debenture-holders.

2. The company shall redeem the debentures of all the dissenting debenture holders, who have not assented to the resolution.

3. Before roll over of any NCDs or non-convertible portion of the PCDs, at least two credit ratings of not less than investment grade, shall be obtained within a period of six months prior to the due date of redemption and communicated to debenture holders before roll over.

4. Fresh trust deed shall be executed at the time of such roll over.

5. Fresh security shall be created in respect of such debentures to be rolled over.

Provided that if the existing trust deed or the security documents provide for continuance of the security till redemption of debentures, fresh trust deed or fresh security need not be created.

The non-convertible portions of PCDs and the NCDs issued by a listed company, the value of which exceeds Rs.50 lacs, can be rolled over without change in the interest rate subject to section 121 of the Companies Act, 1956 and subject to the following conditions, where the company is in default:

1. A resolution to this effect is passed by postal ballot, having the assent from not less than 75% of the debenture-holders.

2. The company shall send an Auditors’ certificate on the cash flow of the company with comments on the liquidity position of the company to all debenture holders, along with the notice for passing the said resolution.

3. The company shall redeem the debentures of all the dissenting debenture holders, who have not assented to the resolution.

4. The debenture trustee shall decide on whether the company is required to create fresh security and execute fresh trust deed in respect of such debentures to be rolled over

Provided that if the existing trust deed or the security documents provide for continuance of the security till redemption of debentures, fresh security and fresh trust deed need not be created.

1. In case, the convertible portion of any instrument such as PCDs, FCDs etc. issued by a listed company, value of which exceeds Rs.50 Lacs and whose conversion price was not fixed at the time of issue, holders of such instruments shall be given a compulsory option of not converting into equity capital.

2. Conversion shall be done only in cases where instrument holders have sent their positive consent and not on the basis of the non-receipt of their negative reply. 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.

3. In cases where an option is to be given to such instrument holders and if any instrument holder does not exercise the option to convert the debentures into equity at a price determined in the general meeting of the shareholders, the company shall redeem that part of debenture at a price which shall not be less than its face value, within one month from the last date by which option is to be exercised.

4. The above provision shall not apply if such redemption is to be made in accordance with the terms of the issue originally stated.

The debenture trustee shall submit a certificate of compliance with clauses 10.7.1.1, 10.7.1.1A or 10.7.1.2, as the case may be, to the merchant banker which shall be filed with the Board within 15 days of the closure of the rollover or conversion.)(Clause 10.7.1.3)

Companies may issue unsecured / subordinated debt instruments / obligations (which are not 'public deposits' as per the provisions of Section 58 A of the Companies Act, 1956 or such other notifications, guidelines, Circular etc. issued by RBI, DCA or other authorities).(Clause 10.7.2)

Provided that such issue shall be subscribed by Qualified Institutional Buyers or other investor who has given positive consent for subscribing to such unsecured / sub-ordinated debt instruments / obligation.)

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. If the conversion takes place at or after 18 months from the date of allotment, but before 36 months, any conversion in part or whole of the debenture shall be optional at the hands of the debenture holder.

No issue of debentures by an issuer company shall be made for acquisition of shares or providing loan to any company belonging to the same group. The above clause shall not apply to the issue of fully convertible debentures providing conversion within a period of eighteen months.

Premium amount and time of conversion shall be determined by the issuer company and disclosed. The interest rate for debentures can be freely determined by the issuer company.

The offer document shall contain:-

1. Premium amount on conversion, time of conversion.

2. In case of PCDs/NCDs, redemption amount, period of maturity, yield on redemption of the PCDs/NCDs.

3. Full information relating to the terms of offer or purchase including the name(s) of the party offering to purchase the khokhas (non-convertible portion of PCDs).

4. The discount at which such offer is made and the effective price for the investor as a result of such discount.

5. The existing and future equity and long term debt ratio.

6. Servicing behaviour on existing debentures, payment of due interest on due dates on term loans and debentures.

7. That the certificate from a financial institution or bankers about their no objection for a second or pari passu charge being created in favour of the trustees to the proposed debenture issues has been obtained.