Description

SEBI modifies conditions to allow zero coupon debt securities to be issued at reduced face value of Rs. Ten Thousand, expanding options for issuers beyond interest/dividend bearing securities.

Summary

SEBI has modified the conditions for reduction in denomination of debt securities through Circular HO/17/11/24(1)2025-DDHS-POD1/I/491/2025 dated December 18, 2025. The modification allows zero coupon debt securities to be issued at a reduced face value of Rs. Ten Thousand on private placement basis, expanding beyond the previous requirement that securities must be interest/dividend bearing. This change amends Clause 1.3 of Chapter V of the NCS Master Circular dated October 15, 2025.

Key Points

  • Zero coupon debt securities can now be issued at reduced face value of Rs. Ten Thousand
  • Zero coupon securities must have fixed maturity without structured obligations
  • Zero coupon bonds are issued at discount and redeemed at par, with returns realized through the price difference
  • The structure provides compounded returns without interim payouts
  • Previous circular (SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/94 dated July 03, 2024) only allowed interest/dividend bearing securities
  • Modification applies to debt securities and non-convertible redeemable preference shares issued on private placement basis

Regulatory Changes

Clause 1.3 of Chapter V of the NCS Master Circular dated October 15, 2025 has been partially modified. The modified condition 1.3(i)(b) now reads:

“Such debt security or non-convertible redeemable preference share shall be interest/dividend bearing security paying coupon/dividend at regular intervals with a fixed maturity without any structured obligations; or it shall be a zero coupon debt security with a fixed maturity, without any structured obligations.”

Previously, the clause only permitted interest/dividend bearing securities, explicitly excluding zero coupon instruments.

Compliance Requirements

  • Issuers must appoint required intermediaries as per existing conditions
  • Zero coupon debt securities must have fixed maturity period
  • No structured obligations are permitted for securities issued at reduced denomination
  • Securities must meet all other conditions specified in Clause 1.3 of Chapter V of NCS Master Circular
  • Applicable to issuers who have listed or propose to list non-convertible securities

Important Dates

  • December 18, 2025: Circular issued
  • October 15, 2025: NCS Master Circular reference date (SEBI/HO/DDHS/DDHS-PoD/P/CIR/2025/0000000137)
  • July 03, 2024: Original circular on denomination reduction (SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/94)

Impact Assessment

This modification enhances market flexibility by allowing zero coupon debt securities to access reduced denomination issuance. Market participants highlighted that zero coupon instruments attract investors seeking portfolio diversification through compounded returns without interim payouts. The change enables issuers to offer a broader range of debt instruments at accessible denominations, potentially increasing participation in private placement debt markets. The requirement for fixed maturity without structured obligations maintains investor protection while expanding product choices.

Impact Justification

Expands issuance options for debt securities by including zero coupon instruments at reduced denomination, providing greater flexibility for issuers and diversification for investors