What is a security cover certificate? SEBI rules

A security cover certificate is the quarterly document that tells you whether a secured bond is actually secured, and by how much. It lists the charged assets, values them, and reduces the whole thing to cover ratios. The detail worth knowing before you read one is that two different parties certify two different numbers inside it. This guide covers what a security cover certificate is, who certifies which value, how often it is produced, and the rules that decide what counts. It is not investment advice.

What does a security cover certificate contain?

The governing requirement is Regulation 54 read with Regulation 56(1)(d) of the LODR Regulations, which makes the issuer disclose security cover to the stock exchange and the debenture trustee. Chapter V of SEBI's Master Circular for Debenture Trustees, SEBI/HO/DDHS-PoD-1/P/CIR/2025/117 dated August 13, 2025, sets out how the certificate is prepared, by whom, and in what format. The format itself is Annex VA to that circular.

A security cover certificate holds three things: a description of the assets charged, values for those assets on both a book and a market basis, and the cover ratios computed from them. It is prepared per debenture trustee, which matters for issuers with more than one. Under paragraph 1.4, where an issuer has more than one debenture trustee for its listed debt securities, it prepares a separate certificate for each of them.

Who certifies book value and who certifies market value?

This is the part that trips people up, because one certificate carries two certifications from two different professionals.

The issuer prepares the certificate quarterly and its statutory auditor certifies the book values, per paragraph 1.1. Separately, under paragraph 2.1, the debenture trustee on a quarterly basis certifies the market value of assets based on the due diligence carried out by it or through independent professionals, and submits the certificate in the Annex VA format.

The trustee's certification is also bounded. Paragraph 2.1 says the debenture trustee certifies the security cover in respect of the secured debt securities to the extent that the security is held by it. A trustee does not vouch for cover it does not hold.

Where an issuer has multiple debenture trustees, paragraph 2.2 lets them choose a common independent professional to prepare the certificate, so the same asset does not get valued several different ways.

When can market value be left out?

The issuer must provide values in the market value column along with the reference date on which the market value was arrived at. Paragraph 1.2 then allows one exception. For loans, receivables or any other asset offered as security where market value is not ascertainable in that specific quarter, the issuer may provide the carrying or book value in the format instead. The exception carries a cost: the issuer must provide a justification for not providing the market value along with the certificate in that quarter.

Valuation frequency follows a two step rule under paragraph 1.3. Where SEBI has prescribed a frequency of valuation for an asset class, the market value is provided accordingly. Where there is no regulatory guideline on the frequency of valuation for a specific asset class, it is quarterly.

What gets excluded from security cover?

Paragraph 1.5 is short and absolute. Assets that are not paid for shall not be included as part of any security cover calculation. A part paid asset does not contribute cover.

The certificate also has to make unsecured debt visible rather than simply absent. Paragraph 1.9 requires an additional column named "Debt not backed by any assets offered as security", to capture other debt securities such as unsecured debentures, subordinated debt and other issuances that fall in a lower priority order in the waterfall mechanism for liquidation or resolution proceeds.

How are third party and group assets treated?

Where the security is only the issuer's own assets, paragraph 1.6 says the cover is prepared on a standalone basis. Once someone else's assets are involved, the disclosure doubles.

Paragraph 1.7 applies where debt securities are secured by a charge on the assets of a third party, subsidiary, group or holding company, or where the issuer's assets secure debt or other liabilities of such an entity. In those cases the issuer discloses two separate tables: one for security cover on a standalone basis for the issuer, and one on a net summary basis at a consolidated level to show the overall picture of borrowings and security cover.

Certification follows the asset rather than the issuer. Under paragraph 1.8, the book value for security cover is certified by the statutory auditor of the third party, subsidiary, group or holding company whose assets are offered. If the cover is an exclusive charge on those assets, that auditor's certification includes details of the assets and their book value. If it is a pari passu, second or third charge, the certification must include the detail of all encumbrances on those assets, so a junior position is not presented as though it were clean.

What are the integrity checks on the certificate?

Three of them, and each closes a specific gap.

First, variation has to be explained. Under paragraph 2.3, where the computed value of security cover falls compared with the previous quarter or a previously calculated cover, the debenture trustee records the reason for the variation in the certificate, and may obtain clarification from the issuer.

Second, the certificate carries a Unique Document Identification Number. Paragraph 4 requires security cover certificates to contain, as applicable, the UDIN generated in the manner prescribed by the relevant regulatory authority, which ties the certificate to an identifiable professional.

Third, disclaimers cannot hollow it out. Paragraph 5 requires the debenture trustee to ensure that qualifications or disclaimers, by whatever name called, do not impair the rights of holders of debt securities in terms of the security provided. Where the trustee believes such wording is affecting holders' rights, it shall take corrective action.

Reading the certificate itself

The framework above tells you what the certificate is for. The Annex VA format has its own logic, including fifteen labelled columns, an elimination column that exists to stop debt being counted twice, and separate cover ratios for exclusive and pari passu charges. That mechanics walkthrough is in how to read a security cover certificate.

The certificate is one of the reports a trustee files on a schedule, alongside pledged security statements and guarantor net worth certificates. Those deadlines are set out in debenture trustee reporting deadlines. The covenants that a falling cover ratio can breach, and what follows, are covered in what happens when a bond covenant is breached.

A security cover certificate records charged assets and computed ratios on a stated date, on a book and market basis certified by different parties. Flock reports what issuers and trustees disclose, with the source and the date attached. It is not investment advice.