Market regulator Securities and Exchange Board of India (SEBI) has expanded the scope of privately placed debt securities that can be issued at a reduced face value of Rs 10,000, allowing issuers to offer both regular interest-bearing instruments and zero-coupon bonds.
In a circular issued, today, the regulator amended conditions governing the reduction in denomination of debt securities and non-convertible redeemable preference shares, originally laid out in July, 2024.
Earlier, only interest or dividend-bearing securities with fixed maturity, periodic pay-outs and no structured obligations were eligible for issuance at the reduced denomination. Under the revised framework, issuers can now also offer zero-coupon debt securities, issued at a discount and redeemed at par, with fixed maturity and no structured obligations at the same Rs 10,000 face value.
Amended SEBI circular stated “Such debt security or non-convertible redeemable preference share shall be interest/ dividend bearing security paying coupon/ dividend at regular intervals with a fixed maturity without any structured obligations; or it shall be a zero coupon debt security with a fixed maturity, without any structured obligations3” . The circular has added “or it shall be a zero-coupon debt security with a fixed maturity, without any structured obligations3”
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SEBI said market participants had highlighted the usefulness of zero-coupon instruments, which enable investors to earn returns through the difference between the issue price and face value, effectively providing compounded returns without interim interest payments. The regulator noted that the move would help investors diversify portfolios while widening funding options for issuers.
The revised norms apply to all privately placed debt securities proposed to be listed from the date of the issuance of the circular.
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