- By Aditya Pratap Singh
- Mon, 08 Jul 2024 12:15 PM (IST)
- Source:JND
The country's market regulator Securities and Exchange Board of India (Sebi) has taken a key step to encourage retail investors to participate in the corporate bond market. In an announcement made on Wednesday, Sebi reduced the face value of debt securities in the corporate bond market from Rs 1 lakh to Rs 10,000. Market participants believe that lowering the investment threshold in debt securities will encourage retail or non-institutional investors to participate in the corporate bond market, which is expected to increase liquidity in the market.
Face value reduced
You can also get an idea of how large the reduction is from the fact that the face value of corporate bonds was Rs 10 lakh until 2022. In October 2022, Sebi reduced the face value of corporate bonds from Rs 10 lakh to Rs 1 lakh directly. And now Sebi has brought it within reach of retail investors by reducing it to only Rs 10,000. This decision of Sebi can be seen as a historic step for the Indian corporate bond market.
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What did Sebi's circular say
In a circular issued on Wednesday, Sebi announced its decision, saying, "Debt security instruments or non-convertible debenture redeemable preference shares with a face value of Rs 10,000 can be issued on a private placement basis." However, certain conditions have to be followed while doing so. For example, the issuer will have to appoint at least one merchant banker, and the non-convertible debenture (NCD) and non-convertible debenture redeemable preference shares should be simple instruments paying interest or dividends. Sebi said that credit enhancements will be allowed through such instruments.
Merchant banker has to be appointed
According to Sebi's circular, corporates issuing bonds can raise funds through tranche placement memorandum or key information document at a face value of Rs 10,000, provided at least one merchant banker is appointed for due diligence related to such issue. Apart from this, the bond issuer will also have to issue a shelf placement memorandum or general information document (GID).
