The Reserve Bank of India wants issuers of Commercial Papers (CPs) and Non-Convertible Debentures (NCDs) to disclose information on any payment default through various channels, including publicly disseminating such information through their websites.
These requirements form part of the revised Master Direction on CPs and NCDs of original or initial maturity up to one year, and are aimed at improving the transparency and safety of money markets.
An issuer who has defaulted on the repayment of a coupon/ redemption, partially or in full, of a CP and/ or NCD has to provide details of the same to the IPA (Issuing and Paying Agent) before 5 pm on the date of the default.
Key factors investors must note before investing in bonds and NCDs
In the case of NCDs, the details should also be informed to the Debenture Trustee.
CP is an unsecured money market instrument issued in the form of a promissory note. The RBI’s circular has defined NCD as a secured money market instrument with an original or initial maturity up to one year.
RBI said repayment of obligations under a defaulted CP or NCD can be made directly to the investor/ s by the issuer or can be routed through the IPA or Debenture Trustee.
Further, partial repayments, if any, of a CP/NCD should be distributed to investors in proportion to the investment made in these instruments.
A CP/ NCD that is converted into another financial instrument after default, as part of a bilateral /multilateral agreement or restructuring scheme, would stand extinguished on the date of conversion, according to the directions.