Description

SEBI modifies conditions to allow zero coupon debt securities to be issued at reduced face value of Rs. Ten Thousand, previously limited to interest/dividend bearing securities only.

Summary

SEBI has modified the conditions for reduction in denomination of debt securities under the NCS Master Circular dated October 15, 2025. The key change allows zero coupon debt securities to be issued at a reduced face value of Rs. Ten Thousand on private placement basis, previously restricted to only interest/dividend bearing securities. This amendment addresses market feedback that zero coupon instruments, which are issued at discount and redeemed at par, provide attractive compounded returns for investors without interim payouts.

Key Points

  • Zero coupon debt securities now eligible for reduced denomination of Rs. Ten Thousand
  • Previously only interest/dividend bearing securities qualified for reduced face value
  • Zero coupon securities must have fixed maturity without structured obligations
  • Amendment modifies Clause 1.3 of Chapter V of NCS Master Circular dated October 15, 2025
  • Applies to debt securities and non-convertible redeemable preference shares issued on private placement basis
  • Zero coupon bonds are issued at discount and redeemed at par, providing compounded returns

Regulatory Changes

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

Previous Requirement:

  • Debt securities/NCRPS at Rs. Ten Thousand face value must be interest/dividend bearing securities paying coupon/dividend at regular intervals with fixed maturity without structured obligations

Modified Requirement:

  • Such securities shall be interest/dividend bearing paying coupon/dividend at regular intervals with fixed maturity without structured obligations; OR
  • It shall be a zero coupon debt security with fixed maturity, without any structured obligations

This change references the original circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/94 dated July 03, 2024 which first provided for reduction in denomination of debt securities.

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 Rs. Ten Thousand face value:

  • Issuer must appoint required intermediaries (as per existing conditions)
  • Security must either be:
    • Interest/dividend bearing with regular coupon/dividend payments, fixed maturity, no structured obligations, OR
    • Zero coupon debt security with fixed maturity and no structured obligations
  • Must be issued on private placement basis

Important Dates

  • Circular Date: December 18, 2025
  • Reference Circular: SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/94 dated July 03, 2024
  • Modified Master Circular: SEBI/HO/DDHS/DDHS-PoD/P/CIR/2025/0000000137 dated October 15, 2025
  • Effective Date: Not explicitly stated, typically effective immediately unless specified otherwise

Impact Assessment

Market Impact:

  • Expands the universe of debt instruments eligible for reduced denomination issuance
  • Increases accessibility of zero coupon bonds to a broader investor base
  • Promotes portfolio diversification opportunities for investors seeking compounded returns without interim payouts
  • Addresses market participant feedback on excluding zero coupon instruments

Issuer Impact:

  • Greater flexibility in structuring debt securities at lower denominations
  • Ability to issue zero coupon bonds at Rs. Ten Thousand face value on private placement
  • May improve fundraising options for issuers preferring zero coupon structures

Investor Impact:

  • Access to zero coupon instruments at lower entry points (Rs. Ten Thousand vs higher denominations)
  • Zero coupon structure provides compounded returns through discount-to-par mechanism
  • Attractive for investors seeking long-term growth without periodic income requirements

Operational Impact:

  • Stock exchanges, depositories, and intermediaries need to update systems to accommodate zero coupon securities at reduced denominations
  • Credit rating agencies and debenture trustees must apply framework to zero coupon instruments
  • Minimal compliance burden as structure aligns with existing reduced denomination framework

Impact Justification

Expands issuance flexibility for debt securities by including zero coupon instruments in reduced denomination framework, beneficial for issuers and investors seeking portfolio diversification