Sebi puts in place disclosure framework for municipal debt securities

Markets regulator Sebi on Wednesday came out with a detailed disclosure framework for entities seeking a listing of municipal debt securities issued on a private placement basis. Under the new disclosure framework, Sebi said it has widened the definition of issuers, revised timelines for submission of annual and half-yearly financial results, and issued structure payment mechanism through escrow accounts, among others.

Regarding disclosure of financial information, the regulator said the listed entities will have to prepare and submit half-yearly un-audited financial results to the stock exchange as soon as it is available but not later than 45 days of the end of the first half-year. For annual audited financial results, the entities need to submit the result along with the audit report within 60 days from the end of a financial year.

Besides, for entities being audited by the CAG (Comptroller and Auditor General of India), Sebi has provided a two-step process for auditing accounts. The financial results should contain comparative information for the corresponding period of the previous financial year, and the results submitted to exchanges will be taken on record by standing committee, general body, the board of directors or board of trustee as applicable, Sebi said.

Additionally, the firms are required to disclose debt-equity ratio, debt service coverage ratio, interest service coverage ratio among others along with the half-yearly and annual financial results, it added. "The listed entities shall submit a certificate to the stock exchange(s)intimating the status of payment of interest or principal or both within five working days of the same becoming due in respect of municipal debt securities," the regulator said.

The firms have been directed to maintain an escrow account, interest payment account, sinking fund account and general account for purposes prescribed by Sebi and any balance in these accounts and notes pertaining to transfers made to or from these accounts will be disclosed to the exchanges within 45 days from the end of the quarter. According to the regulator, a sinking fund account needs to be created for the redemption of municipal debt securities.

"The amounts available in the escrow accounts may be invested in government securities or treasury bills or fixed deposit with a scheduled commercial bank or liquid mutual fund or gilt fund or debt mutual funds or debt ETFs (Exchange Traded Funds) with a lien in favor of the debenture trustee," Sebi said. Securities and Exchange Board of India (Sebi) said every credit rating will be reviewed at least once a year, by a registered credit rating agency, while in cases where credit rating gets downgraded by two or more notches below the rating assigned at the time of issue, the entity will have to disclose the reasons for downgrade in rating and the steps it intends to take to recover the rating.

With regard to the annual report, the market watchdog said it should contain a balance sheet, income and expenditure account, statement of cash flows, financial performance indicators, auditor report, municipal commissioner's report on the annual financial statements and the qualifications and comments made in the report of the auditor among others.

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