Executive Summary:
This circular, issued by SEBI on October 28, 2022, amends Chapter V of the Operational Circular regarding the denomination of issuance and trading of Nonconvertible Securities. It reduces the face value of privately placed debt securities and nonconvertible redeemable preference shares from Rs. Ten lakh to Rs. One lakh. These provisions are effective for all new ISINs issued on or after January 1, 2023.
Key Points / Main Content:
Denomination Changes:
* The face value of each debt security or nonconvertible redeemable preference share issued on a private placement basis is reduced to Rs. One lakh.
* The face value of listed debt securities and nonconvertible redeemable preference shares traded on a stock exchange or OTC basis is reduced to Rs. One lakh.
Effective Date:
* The provisions are applicable to all issues of debt securities and nonconvertible redeemable preference shares, on private placement basis, through new ISINs, on or after January 1, 2023.
Shelf Placement Memorandum:
* Issuers with a valid shelf placement memorandum as of January 1, 2023, have the option to keep the face value at Rs. Ten lakhs or reduce it to Rs. One lakh when raising funds through tranche placement memorandum.
* These issuers must issue a necessary addendum to the shelf placement memorandum.
Impact Analysis:
Issuers of Nonconvertible Securities:
Impact: Issuers can now offer debt securities and nonconvertible redeemable preference shares with a lower face value, potentially attracting more investors and enhancing liquidity.
Action Required: Ensure compliance with the new denomination requirements for all new ISINs issued on or after January 1, 2023. Issuers with valid shelf placement memorandums as of January 1, 2023, must decide whether to keep the face value at Rs. Ten lakhs or reduce it to Rs. One lakh and issue an addendum accordingly.
Recognized Stock Exchanges, Registered Depositories:
Impact: Stock exchanges and depositories will need to adapt their systems and processes to accommodate the new denomination requirements.
Action Required: Update trading and settlement systems to reflect the revised face value of Rs. One lakh for debt securities and nonconvertible redeemable preference shares.
Registered Credit Rating Agencies, Debenture Trustees, Merchant Bankers, Registrars to an Issue and Share Transfer Agents and Bankers to an Issue:
Impact: These intermediaries will need to adjust their procedures and documentation to reflect the new denomination requirements.
Action Required: Modify relevant processes and documentation to align with the revised face value of Rs. One lakh for debt securities and nonconvertible redeemable preference shares.
Non-Institutional Investors:
Impact: Reduced denomination will allow increased access to the corporate bond market.
Action Required: None.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular, responsible for regulating the securities market in India.
Nonconvertible Securities: A type of debt security that cannot be converted into equity.
Nonconvertible Redeemable Preference Shares: A type of preference share that cannot be converted into equity and is redeemable.
Operational Circular no. SEBIHODDHSPCIR2021613: Previous circular issued by SEBI which prescribes provisions pertaining to denomination of issuance and trading of Nonconvertible Securities.
Securities and Exchange Board of India Act, 1992: The act of Parliament that established the Securities and Exchange Board of India (SEBI) and defines its powers and functions.
SEBI Issue and Listing of Nonconvertible Securities Regulations, 2021: Regulations governing the issue and listing of nonconvertible securities.
Registered Credit Rating Agencies: Entities registered with SEBI that provide credit ratings for debt instruments.
Debenture Trustees: Trustees who act on behalf of the investors in debt securities.
CIRCULAR
SEBI/HO/DDHS/P/CIR/2022/00144 October 28, 2022
To,
Issuers who have listed and/ or propose to list Non-convertible Securities;
Recognised Stock Exchanges;
Registered Depositories;
Registered Credit Rating Agencies, Debenture Trustees, Merchant Bankers, Registrars
to an Issue and Share Transfer Agents and Bankers to an Issue
Madam/ Sir,
Sub: Reduction in denomination for debt securities and non-convertible redeemable
preference shares
(Revision in Chapter V of the Operational Circular for issue and listing of Non-convertible
Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities
and Commercial Paper)
1. Chapter V of the Operational Circular no. SEBI/HO/DDHS/P/CIR/2021/613 dated August
10, 2021, issued by SEBI, prescribes provisions pertaining to denomination of issuance
and trading of Non-convertible Securities.
2. The said circular, inter alia, mandates that the face value of each debt security or non-
convertible redeemable preference share issued on private placement basis shall be Rs.
Ten lakh and the trading lot shall be equal to the face value.
3. SEBI has received representations from various market participants, including issuers,
requesting for review of the said denominations. In particular, non-institutional investors
consider the high ticket size as a deterrent which restricts their ability to access the market
for corporate bonds. If the face value and trading lot is reduced, more investors can
participate, which in turn will enhance the liquidity in the corporate bond market.
4. Accordingly, the following amendments are being made in Chapter V (Denomination of
issuance and trading of Non-convertible Securities) of the Operational Circular:
Page 1 of 2Paragraph 1.1. shall be replaced with the following:
1.1. The face value of each debt security or non-convertible redeemable preference
share issued on private placement basis shall be Rs. One lakh.
Paragraph 2.1. shall be replaced with the following:
2.1. The face value of the listed debt security and non-convertible redeemable preference
share issued on private placement basis traded on a stock exchange or OTC basis shall
be Rs. One lakh.
5. The provisions of this circular shall be applicable to all issues of debt securities and non-
convertible redeemable preference shares, on private placement basis, through new
ISINs, on or after January 1, 2023.
Provided that with respect to a shelf placement memorandum which is valid as on January
1, 2023, the issuer thereof shall have the option while raising funds through tranche
placement memorandum, to keep the face value at Rs. Ten lakhs or Rs. One Lakh.
Necessary addendum shall be issued by such issuer to the shelf placement memorandum.
6. The Circular is issued in exercise of the powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 55 (1) of the SEBI
(Issue and Listing of Non-convertible Securities) Regulations, 2021 to protect the interest
of investors in securities and to promote the development of, and to regulate the securities
market.
7. This Circular is available at www.sebi.gov.in under the link “LegalCirculars”.
Yours faithfully,
Pradeep Ramakrishnan
General Manager
Department of Debt and Hybrid Securities
+91 – 022 2644 9246
pradeepr@sebi.gov.in
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