Market regulator SEBI reduces face value for debt securities to boost corporate bond market liquidity

With an aim to enhance liquidity in the corporate bond market, the Securities and Exchange Board of India (SEBI) on Friday reduced the face value of debt security and non-convertible redeemable preference share issued on private placement basis to Rs 1 lakh from the current Rs 10 lakh.

The move came after the regulator received representations from various market participants, including issuers, requesting for review of the denominations.

Further, 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, Sebi said in a circular.

The regulator said the face value of each debt security or non-convertible redeemable preference share issued on private placement basis "shall be Rs 1 lakh."

Under the current rules, the face value of each debt security or non-convertible redeemable preference share issued on private placement basis is Rs 10 lakh and the trading lot is equal to the face value.

The new guidelines will 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.

However, with respect to shelf placement memorandum which is valid as on January 1, 2023, the issuer thereof will have the option while raising funds through tranche placement memorandum, to keep the face value at Rs 10 lakh or Rs 1 lakh.

Necessary addendum need to be issued by such issuer to the shelf placement memorandum, Sebi said.