Securities and Exchange Board of India (SEBI) on 17 June 2014 issued new norms for public issuance of debt securities. The new norms were issued with a view to tighten the norms governing the public issue of debt securities.
• The debt securities have to be of minimum of 100 crore rupees for both non-banking finance companies (NBFCs) and non-NBFC issuers.
• The issuer need to make additional disclosures and attain atleast 75 percent of the base issue size.
• If the issuer does not receive minimum subscription, the entire application money will have to be refunded within 12 days from the date of the closure of the issue along with interest at the rate of 15 per cent per annum for the delayed period.
• SEBI prescribes a minimum subscription limit of 90 percent in case of an initial public offering.
• In case of public issue of non-convertible debentures (NCDs), the issuer can decide the amount of minimum subscription and disclose the same in the offer document.
• Foreign Portfolio Investors (FIIs) investment in non-convertible shares or debentures will be included within the 51-billion US dollars limit meant for corporate debts.
• SEBI exempted the issuers of tax-free bonds from the minimum subscription limit as specified by the Central Board of Direct Taxes. It also sought to increase the transparency of utilisation of the proceeds.
A debt security is an investment in bonds issued by the government or a corporation. At the time of purchasing a bond, the acquisition costs are recorded in an asset account, such as Debt Investments. Acquisition costs include the market price paid for the bond and any investment fees or broker's commissions.
Debenture is a bond which is not secured by any asset or collateral is known as a debenture. Debentures are mostly long term in nature and at times, the holder has an option of exchanging debentures for stocks of the issuing company. Debentures are of two types: Convertible debenture and Non Convertible debentures.
• Convertible debentures are those which can be converted into company stocks. These types of debentures generally command a lower interest rate when compared with non convertible debentures.
• Non convertible debentures are those which cannot be converted into company stocks. These types of debentures generally command a higher interest rate when compared with convertible debentures.
When: 17 June 2014