A. Background:
The Securities and Exchange Board of India (SEBI) has eased the regulatory framework for issuance of debt securities at a reduced face value on a private placement basis. The circular dated December 18th, 2025, has expressly permitted zero-coupon debt securities to be issued at a face value of Rs. 10,000/-, subject to prescribed conditions.
B. Brief History:
- Circular dated July 03rd, 2024[i]:
- The Change: SEBI permitted the issuance of debt securities and non-convertible redeemable preference shares (NCRPS) on a private placement basis at a reduced face value of Rs. 10,000/–, down from Rs. 1 lakh, but subject to certain conditions.
- Restriction: At this stage, the reduced denomination was only permitted for securities that were interest or dividend-bearing and paid at regular intervals.
- Practical impact: Issuers using discounted, bullet-redemption structures could not access the Rs. 10,000/- denomination route.
- Consultation Paper dated August 01st, 2025[ii]:
- The Change: Following feedback that Zero Coupon debt securities (which are issued at a discount and redeemed at par) are attractive to non-institutional investors, SEBI proposed modifying the “interest-bearing” requirement.
- Practical impact: Facilitating the inclusion of zero-interest instruments under the Rs. 10,000/- denomination umbrella to further enhance market liquidity and retail participation.
- Circular dated December 18th, 2025[iii]:
- SEBI has now formally implemented the consultation proposal through its circular dated December 18th, 2025, by modifying Clause 1.3 of Chapter V of the Master Circular.
- The Change: This latest circular officially amends Chapter V of the October Master Circular to reflect the proposals from the August consultation paper.
- Impact: Issuers are now eligible to issue debt securities at a reduced face value (Rs. 10,000/-) that may be either interest-bearing or zero-interest-bearing.
- Applicability: These provisions apply to all private placement issues proposed to be listed from December 18th, 2025, onwards.
C. Important to note:
While the consultation paper dated August 01st, 2025 had proposed extending the reduced denomination framework to non-convertible redeemable preference shares carrying zero dividend, this proposal was not carried through into the final SEBI circular dated December 18th, 2025.
The narrowing of scope appears consistent with the Companies Act, 2013 framework governing preference share capital. Under Section 43 read with Section 55 of the Companies Act, preference shares are, by design, capital instruments carrying a preferential right to dividend, whether fixed or contingent.
SEBI’s final decision to confine the reduced denomination relaxation only to zero-coupon debt securities, while excluding zero-dividend preference shares, reflects a conscious alignment with the capital character of preference shares under the Companies Act, 2013, and cannot be read as an approval of the consultation proposal insofar as preference shares are concerned.
Conclusion:
SEBI’s circular dated December 18th, 2025, provides issuers with greater flexibility by allowing zero-coupon debt securities to be issued at a reduced face value of Rs. 10,000/-, thereby widening access to non-institutional investors and improving market participation. At the same time, SEBI has clearly drawn the line by not extending this benefit to zero-dividend preference shares, in line with the Companies Act, 2013.
Issuers planning private placements should therefore carefully structure their instruments to ensure that only eligible debt securities avail of the reduced denomination framework.