In a consultation paper tabled on Saturday, the market watchdog proposed replacing the word “letter of intent” with “debenture trustee agreement” in the Securities and Exchange Board of India’s (SEBI) rules for issue and listing of non-convertible securities, or NCS regulations.
A Debenture Trustee Agreement (DTA), which gives legal effect to the appointment of a debenture trustee, is considered by regulators to be more significant than the term “letter of agreement” previously used.
This change will enable investors to make more informed decisions when investing in corporate bonds.
Earlier, the Working Group had noted that while the issuer obtains a letter of intent from the debenture trustee before the commencement of the transfer, the DTA is executed between the two parties at a later stage. However, the letter of intent does not appear to have any legal effect, the Working Group added. Hence, the Working Group agreed that the legal document authorising the appointment of the debenture trustee is the DTA and not the letter of intent. Sebi also said that “the debenture trustee agreement will be made accessible to investors through a ‘QR code’ in the offer document.” This digital access will enable investors to review the agreement, get a thorough understanding of the trustee’s role and obligations and ensure easy access to key information.
The Securities and Exchange Board of India (SEBI) has invited public comments and suggestions on the consultation paper by September 6.
The move comes in response to the recommendations of a task force tasked with improving ease of doing business in the financial sector, in line with the targets set by the government in the 2023-24 Budget.
