loader

Disclaimer

The Bar Council of India does not permit advertisement or solicitation by advocates in any form or manner. By accessing this website, www.khaitanco.com, you acknowledge and confirm that you are seeking information relating to Khaitan & Co of your own accord and that there has been no form of solicitation, advertisement or inducement by Khaitan & Co or its members. The content of this website is for informational purposes only and should not be interpreted as soliciting or advertisement. No material/information provided on this website should be construed as legal advice. Khaitan & Co shall not be liable for consequences of any action taken by relying on the material/information provided on this website. The contents of this website are the intellectual property of Khaitan & Co.

Please accept the above
PROCEED TO WEBSITE
Close

Search

See all results for ""

Listed Debt Instruments - Reduction in Denomination Permitted

download
16-Jul-2024

At its board meeting dated April 30, 2024, the Securities and Exchange Board of India (SEBI) made several amendments to various SEBI regulations. The most significant change was the approval of a reduction in the face value of privately placed debt securities and non-convertible redeemable preference shares to INR 10,000. In its bid to augment market liquidity and diversify the investor base, the SEBI, by way of its circular dated 3 July 2024 (Circular) has amended 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 22 May 2024 (NCS Master Circular) and, amongst others, reduced the face value denomination of debt securities and non-convertible redeemable preference shares (NCRPS) from INR 1,00,000 to INR 10,000. This move is targeted at making debt securities and NCRPS more accessible to non-institutional investors (NIIs).

Applicability of the Circular

The Circular will be applicable from the date of its issuance (i.e., 3 July 2024) to all debt securities and NCRPs issued on a private placement basis and proposed to be listed.

Impact Analysis of the Circular

Following is a tabular representation of the key amendments to the NCS Master Circular and their impact analysis:

Sr. No.

Particulars

Amendment

Impact
  1.  

Face value reduction

Issuers can now issue debt securities and NCRPS with a face value of INR 10,000

Lower denomination of securities will make it more affordable for NIIs to participate in the corporate bond market. This will result in larger investor pool and enhanced liquidity in the market.
  1.  

Merchant banker appointment

At least one merchant banker to be appointed by the issuer

Merchant banker’s role and responsibility will be same as in case of a public issue. This will ensure professional management and will boost investor confidence and the overall credibility of the market.
  1.  

Diversification of credit enhancements

Some of the forms of credit enhancement permitted are guaranteed bonds, partially guaranteed bonds, and standby letters of credit

Such credit enhancements have the potential of making the debt securities and NCRPS more attractive by reducing investor risk. This will in turn add a democratic attribute to the debt market.
  1.  

Verification by Credit Rating Agencies (CRAs)

Unconditional, irrevocable, and legally enforceable nature of credit support to be verified by CRAs.

This aims to bring credibility to the credit enhancement provided in support of the security.

Comment

The amendment aims to broad base investor pool in the corporate bond market. With this amendment SEBI anticipates enhanced liquidity and efficient price discovery. From issuers perspective, this move has a potential of reducing their cost for raising capital. This may result in higher due diligence requirements due to the compulsory appointment of merchant banker by the issuers, however, it will ensure better disclosures and more efficient due diligence exercises. Although the adaptation to the new amendments may lead to additional compliance, all in all, these amendments can possibly bolster inclusivity and liquidity in the market. One of the crucial elements for successful implementation is investors’ education of the risks and rewards associated with investing in lower denominated debt securities.

  • Manisha Shroff (Partner), Shrey Agarwal (Counsel), and Shubha Ojha (Associate)

For any queries please contact: editors@khaitanco.com

Manisha Shroff (partners) , Shrey Agarwal (partners)

We have updated our Privacy Policy, which provides details of how we process your personal data and apply security measures. We will continue to communicate with you based on the information available with us. You may choose to unsubscribe from our communications at any time by clicking here.

For private circulation only

The contents of this email are for informational purposes only and for the reader’s personal non-commercial use. The views expressed are not the professional views of Khaitan & Co and do not constitute legal advice. The contents are intended, but not guaranteed, to be correct, complete, or up to date. Khaitan & Co disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident or any other cause.

© 2021 Khaitan & Co. All rights reserved.

Mumbai

One Forbes
3rd & 4th Floors, No. 1
Dr. V. B. Gandhi Marg
Fort, Mumbai 400 001

Chennai

119/65, First Floor
Dr Radhakrishnan Salai
Mylapore
Chennai 600 004,
India

Noida

Max Towers
7th & 8th Floors
Sector 16B, Noida
Gautam Buddh Nagar
201 301 India

Singapore

Ocean Financial Centre
#37-02 10 Collyer
37th Floor Quay
Raffles Place 049315,
Singapore