The circular issued by SEBI on July 3, 2024, amends Chapter V of the Master Circular No. SEBI/HO/DDHS/PoD1/P/CIR/2024/54 dated May 22, 2024, concerning the denomination of issuance and trading of non-convertible securities. The amendments aim to enhance retail investor participation and liquidity in the corporate bond market by lowering the minimum face value requirements for private placement of debt securities and non-convertible redeemable preference shares:
- Reduction in Face Value: The minimum face value for private placement of debt securities and non-convertible redeemable preference shares is reduced to Rs. 10,000/- from Rs. 1,00,000/-, subject to the appointment of at least one Merchant Banker and compliance with specified conditions regarding interest/dividend payments, fixed maturity, and absence of structured obligations.
- Documentation and Due Diligence: Regarding existing Shelf Placement Memorandum (SPM) or General Information Document (GID) valid as of the effective date of the circular, issuers are permitted to raise funds using Tranche Placement Memorandum (TPM) or Key Information Document (KID) with a face value of Rs. 10,000/-. This allowance is contingent upon the appointment of at least one Merchant Banker to conduct due diligence for such issuances. Issuers must issue a necessary addendum to the SPM or GID, as applicable, to reflect these new provisions.
- Trading Conditions: Listed debt securities and non-convertible redeemable preference shares traded on stock exchanges or OTC platforms must maintain a trading lot equal to their face value.
- Permissible Credit Enhancements: Various credit enhancements are allowed for issuing these securities, including guaranteed bonds, partially guaranteed bonds, standby letter of credit (SBLC) backed securities, debt backed by pledge of shares or assets, guaranteed pooled bond issuance (PBI), obligor/co-obligor structures, cross default guarantee structures, and debt backed by payment waterfall/escrow or DSRA (Debt Service Reserve Account), with guarantees from third parties. Credit Rating Agencies must verify the unconditional and legally enforceable nature of such enhancements
- Applicability: The circular applies to all future issuances of debt securities and non-convertible redeemable preference shares on a private placement basis proposed for listing from the date of its issuance
This regulatory framework is designed to foster a more inclusive and liquid corporate bond market while ensuring compliance with investor protection and market development objectives outlined by SEBI.
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