SEBI proposes slashing NCD face value from Rs one lakh to Rs 10,000
Mumbai, December 12, 2023
Security and Exchange Borad of India, SEBI proposes slashing NCD face value, Sebi, on-convertible debentures, non-convertible redeemable preference shares, non institutional investors, indian express news
State Bank of India Chairman Dinesh Khara in a meeting with Union Finance Minister Nirmala Sitharaman at Parliament House on Monday. (Image source: @nsitharamanoffc)
The Securities and Exchange Board of India (Sebi) has proposed to permit companies to issue non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) with the face value of Rs. 10,000 as against the current system of Rs one lakh face value.
According to a Sebi consultation paper, the measure is aimed at enhancing participation of the non-institutional investors in the corporate bond market coupled with mitigation and management of risk to safeguard and protect the interest of such non-institutional investors.
However, in such cases, the issuer should appoint merchant banker who will carry out due diligence for issuance of such privately placed NCDs or NCRPS and disclosures in the private placement memorandum. Further, such NCDs and NCRPS should be plain vanilla, interest/ dividend bearing instruments with a simple structure without any credit enhancements or structured obligations.
SEBI, in the agenda ‘Introduction of Regulatory framework for Online Bond Platforms’ placed before the Board in the meeting held on September 30, 2023 approved the proposal to reduce the face value from Rs 10 lakh to Rs one lakh.
According to SEBI, the rationale provided has been that non-institutional investors consider the high ticket size as a deterrent which restricts their ability to access the market and acts as an entry barrier for such non-institutional investors to participate in the corporate bonds market.
Moreover, pursuant to the introduction of the regulatory framework for online bond platforms, a large part of the investor base comprises of non-institutional investors. Consequently, to increase further participation (especially non-institutional investors), a reduction in the minimum face value of debt securities and NCRPS issued on private placement basis has been suggested. This should be coupled with necessary risk mitigation measures, it said.
During the period from July to September 2023, it was observed that non-institutional investors subscribed to 4 per cent of the total amount raised as compared with the general average of less than 1 per cent. The said increase in non-institutional investor participation may be attributed to the reduction in face value from Rs 10 Lakh to Rs one lakh made in October 2022 and the mainstreaming of Online Bond Platforms (OBPs), the SEBI paper said.
During the period from July to September 2023, the total volume of trades undertaken on the OBPs aggregates to around Rs 333 crore by 1974 users (investors), it said.
SEBI had earlier mandated that the face value of each debt security or non-convertible redeemable preference share issued on private placement basis should be Rs one lakh and the trading lot should be equal to the face value. Prior to such change in October 2022, the face value and the trading lot were Rs 10 lakh per debt security.
Further, it was also observed that there has been increasing prevalence in issuance of securitised debt instruments (SDIs) having, inter alia, the corporate bonds as underlying assets.
SEBI also proposed that the timeline for listing of fast track public issue of debt securities may be specified at ‘T+3’, as opposed to ‘T+6’ for a regular public issue.
SEBI said issuers which have listed outstanding NCDs as on the date of the issue document or issue opening date, as applicable, may insert a QR code, the scanning of which opens a web-link for the audited financials for last three financial years and stub period financials in the offer document. Such link should direct the user to the stock exchange’s website where such data is hosted.
[The Indian Express]
