SEBI Lowered the Face Value of Debt Securities to Rs. 10,000
Overview
The Securities and Exchange Board of India (SEBI) has lowered debt securities face value Rs.10,000. The main objective is to increase retail investor participation in the corporate bond market and also to increase market liquidity.
Encourage Retail Participation
The reduction in face value is aimed to attract more non-institutional investors. A smaller ticket size is aimed to increase retail investors participation, increase in liquidity and more accessibility of the corporate bond market .
SEBI's Circular Details
As per SEBI’s latest circular, SEBI stated that the issuing entity can issue debt securities or non-convertible callable preference stocks on a private issuance at a face value of Rs.10,000. This decision was aimed to make the corporate bond market accessible to a broader range of investors.
Conditions and Requirements
Merchant Banker Appointment
Issuers must appoint at least one merchant banker to oversee the issuance process, ensuring proper due diligence and also should adhere to regulatory standards
Instrument Types
Non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) must be plain vanilla, interest, or dividend-bearing instruments. SEBI also permits credit enhancements for these instruments.
General Information Document (GID)
As per the General Information document, validity based on the circular's date of effect, the issuers can raise funds by placing a tranche memorandum or a key Information Document with face value of Rs.10,000, provided a merchant banker is appointed to conduct due diligence. Necessary addenda should be issued by the issuer to the shelf placement memorandum or General Information Document as applicable.
Historical Context
Earlier in October,2022 SEBI has already lowered the corporate bonds face value from Rs. 10 lakhs to Rs. 1 lakh. SEBI’s current lowering in debt securities face value to Rs.10,000 is another step by SEBI's ongoing efforts to make the corporate bond market more accessible and liquid.
Additional Measures
SEBI has also introduced measures to standardize the corporate bond market. They are
• Standardization of the record date in relation to the recognition of foreign debt securities holders.
• The proposal to make uniform certain aspects of the certificate issued by debenture trustees involved in conducting due diligence.
• Introducing flexibility in the periodical reporting on financial performance by entities that list only non-convertible securities.
It is postulated that these changes will eliminate the problematic areas of heterogeneity in markets and bring a standardized structure to market practices, thereby improving consumer confidence especially of the retail investors and efficiency of the markets.
Conclusion
SEBI has set the face value of debt securities at Rs. 10,000 which is a strategic means to increase the activity of the population in the corporate bond market. SEBI’s policy measures, therefore, entail reducing the entry barrier and providing support with the aim of increasing the accessibility of the bond market, allowing more investors to participate and also to increase the liquidity volume in the stock market. Such a change has been made by SEBI and fulfills its ongoing campaign of opening the investment opportunities to the masses and improving the efficiency of the market.
Frequently Asked Questions
What is the recent change made by SEBI on debt securities?
Earlier, the face value of debt securities was Rs. 1,00,000 which is now brought down to Rs. 10,000 by SEBI to increase public participation among the retail investors in the CPs/Corporate bonds market.
What are the effects of decrease in face value to the retail investors ?
Small face value is expected to pull in more ‘relational’ or ‘individual’ investors who are presented due to a lower investment barrier that comes with small face value and which will enhance liquidity and access in the corporate bond market.
What does the SEBI’s new guidelines encompass?
It encompasses NCDs and NCRPS cannot be structured or with any of the structures of convertible secured bonds, and they must be plain vanilla, interest bearing, or dividend bearing. In the same respect, SEBI also permits credit enhancements for these instruments.
What are the provisions laid in SEBI’s circular regarding the issuers?
Every issuer is required to engage the services of at least one merchant banker in the process of issuance to uphold some degree of standard and meet the legal requirements.
Why has SEBI cut the face value of corporate bonds earlier to October 2022?
Previously in October 2022, SEBI had decreased the corporate bonds face value from Rs. 10 lakhs to Rs. 1 lakh in order to increase participation of players in the market. The cut to Rs. 10,000 strengthens SEBI’s ongoing development of investing as accessible to the masses and improving market efficacy.
Related Stock:
Franklin India Corporate Debt Fund
Disclaimer: This blog is dedicated exclusively for educational purposes. Please note that the securities and investments mentioned here are provided for informative purposes only and should not be construed as recommendations. Kindly ensure thorough research prior to making any investment decisions. Participation in the securities market carries inherent risks, and it's important to carefully review all associated documents before committing to investments. Please be aware that the attainment of investment objectives is not guaranteed. It's important to note that the past performance of securities and instruments does not reliably predict future performance.
