Description

SEBI modifies conditions for issuing debt securities at reduced face value of Rs. Ten Thousand to include zero coupon debt securities without structured obligations.

Summary

SEBI has modified the conditions for reduction in denomination of debt securities and non-convertible redeemable preference shares. The amendment allows issuers to issue zero coupon debt securities at a reduced face value of Rs. Ten Thousand on private placement basis, expanding the earlier requirement that limited this facility only to interest/dividend bearing securities. This change amends Clause 1.3 of Chapter V of the NCS Master Circular dated October 15, 2025.

Key Points

  • Zero coupon debt securities are now eligible for reduced denomination of Rs. Ten Thousand (previously excluded)
  • Zero coupon instruments must have fixed maturity without structured obligations
  • These securities are typically issued at a discount and redeemed at par, providing compounded returns
  • Investors realize returns through the difference between discounted issue price and face value at maturity
  • The modification responds to market participant feedback on diversification needs
  • Interest/dividend bearing securities continue to be eligible under existing conditions

Regulatory Changes

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

Previous Requirement: Debt securities or non-convertible redeemable preference shares must be interest/dividend bearing, paying coupon/dividend at regular intervals with fixed maturity without structured obligations.

Modified Requirement: Such securities shall be:

  • Interest/dividend bearing security paying coupon/dividend at regular intervals with fixed maturity without structured obligations; OR
  • Zero coupon debt security with fixed maturity, without any structured obligations

This modification expands eligibility while maintaining requirements for debenture trustee appointment and other conditions specified in the original circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/94 dated July 03, 2024.

Compliance Requirements

Applicable to:

  • Issuers who have listed and/or propose to list non-convertible securities
  • Recognized Stock Exchanges
  • Registered Depositories
  • Registered Credit Rating Agencies
  • Debenture Trustees
  • Merchant Bankers
  • Registrars to an Issue and Share Transfer Agents
  • Bankers to an Issue

Requirements for issuing at reduced face value of Rs. Ten Thousand:

  • Issuer must appoint debenture trustee (as per existing conditions)
  • Securities must either be interest/dividend bearing OR zero coupon instruments
  • Must have fixed maturity period
  • Cannot have structured obligations
  • Must be issued on private placement basis

Important Dates

  • Circular Issue Date: December 18, 2025
  • Circular Reference: HO/17/11/24(1)2025-DDHS-POD1/I/491/2025
  • Original Circular Date: SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/94 dated July 03, 2024
  • Modified Master Circular Date: SEBI/HO/DDHS/DDHS-PoD/P/CIR/2025/0000000137 dated October 15, 2025

Impact Assessment

Market Impact:

  • Expands investment options for debt market participants
  • Enables issuers to access funding through zero coupon structures at lower denominations
  • Increases accessibility of debt securities to broader investor base
  • Supports portfolio diversification strategies

Investor Impact:

  • Zero coupon instruments offer compounded returns without interim payouts
  • Attractive for investors seeking specific maturity-linked returns
  • Lower denomination of Rs. Ten Thousand improves accessibility

Issuer Impact:

  • Greater flexibility in structuring debt offerings
  • Ability to offer zero coupon instruments at reduced face value
  • May reduce cost of issuance by accessing wider investor pool

Operational Impact:

  • Stock exchanges, depositories, and intermediaries must update systems to accommodate zero coupon securities at reduced denominations
  • Compliance and documentation requirements remain consistent with existing framework

Impact Justification

Regulatory modification expands options for debt security issuance by allowing zero coupon instruments at reduced face value, benefiting issuers and investors seeking portfolio diversification