SEBI Reduces Denomination of Debt Securities to Boost Market Participation
MAS Team | 25 July 2024
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The Securities and Exchange Board of India (SEBI) has issued a circular on July 03, 2024, introducing significant changes to the denomination of debt securities and non-convertible redeemable preference shares. This move aims to encourage greater participation from non-institutional investors in the corporate bond market and enhance liquidity.
The circular modifies Chapter V of the Master Circular for issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated May 22, 2024. The key changes include:
1. Reduced Face Value: Issuers can now offer debt securities or non-convertible redeemable preference shares on a private placement basis at a face value of Rs10,000, down from the previous Rs1 Lakh.
2. Conditions for Issuance: To issue securities at the lower denomination, issuers must appoint at least one merchant banker with responsibilities similar to those in a public issue. The securities must be interest/dividend-bearing with regular payments and fixed maturity, without structured obligations.
3. Permitted Credit Enhancements: The circular specifies allowed credit enhancements, including guaranteed bonds, partially guaranteed bonds, standby letter of credit (SBLC) backed securities, and debt backed by various assets or guarantees.
4. Credit Rating Agencies' Role: CRAs must verify that the support for credit enhancements is unconditional, irrevocable, and legally enforceable until all obligations are met. They must also ensure that the support provider has a lower default probability than the issuer.
5. Existing Shelf Placement Memorandums: Issuers with valid shelf placement memorandums or general information documents can raise funds at the new face value of Rs. Ten Thousand, provided they appoint a merchant banker for due diligence and issue necessary addendums.
6. Trading Lot Size: The circular mandates that the trading lot of listed debt securities and non-convertible redeemable preference shares issued on private placement basis must always be equal to the face value.
These changes apply to all issues of debt securities and non-convertible redeemable preference shares on private placement basis proposed for listing from the date of this circular. By reducing the minimum denomination, SEBI aims to make corporate bonds more accessible to a broader range of investors, potentially leading to increased market depth and liquidity.
The circular emphasizes that these modifications are designed to protect investor interests and promote the development and regulation of the securities market. As the corporate bond market becomes more accessible, it may lead to more diverse investment opportunities and potentially better price discovery in the debt market.
Dear Investor,
In case of any grievance / complaint :
In case of any grievance / complaint :
- Please contact Compliance Officer Pankaj Raheja at [email protected] and Phone No. - 91-22-35131664.
- You may also approach CEO Debashis Basu at email- id [email protected] and Phone No. - 91-22-35131664.
