New Debt Instruments of SEBI

Debt Instruments

In 1992, the Securities and Exchange Board of India (SEBI) introduced regulations to standardize and oversee various types of new debt instruments. These instruments, including Zero Coupon Debentures/Bonds, Warrants, Deep Discount Bonds, PCD/NCD, and Buyback Arrangements, were brought under a comprehensive framework aimed at ensuring transparency and disclosure. From instruments issued without interest to those with buyback options, SEBI’s norms focused on disclosing critical details, including redemption specifics, collateral arrangements, conversion terms, and interest rates. This regulatory approach aimed to provide investors with essential information, fostering transparency and regulation in the financial market.

Debt Instruments

Here we will discuss various types of debt instruments. These regulations encompassed several types of instruments:

Zero-Coupon Debentures/Bonds

These debt instruments, issued at a discount and redeemed at par, don’t provide interest during their tenure. The return to the investor is the difference between the issue and redemption prices.

Warrants

Attached to bonds or debentures, warrants offer the holder the right (but not the obligation) to buy or sell specified shares at a predetermined price within a specified duration, enhancing the attractiveness of the associated securities.

Deep Discount Bonds

Issued at substantially lower prices than their face value and redeemed at higher rates after a prolonged period, these bonds don’t yield interest during their tenure, offering substantial returns.

PCD/NCD

Partly Convertible Debentures (PCD) comprise convertible and non-convertible portions. The convertible section can transform into equity at predefined rates, while the non-convertible part pays fixed interest. Non-convertible debentures (NCD) don’t convert into equity and redeem at par or a premium, offering fixed or floating interest rates.

Buyback Arrangement with Secured Premium Notes

These instruments include a buyback option for the issuer at a predetermined price and date. They are backed by collateral that can be used in case of default, providing investors with a premium during buyback.

Conclusion

SEBI’s 1992 norms aimed to standardize new debt instruments, focusing on Zero Coupon Debentures/Bonds, Warrants, Deep Discount Bonds, PCD/NCD, and Buyback Arrangements. These regulations prioritized transparency, outlining redemption specifics, collateral quality, conversion terms, interest rates, and more. The framework ensured investors received vital information about diverse financial instruments, fostering a transparent and regulated market.

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