SEBI has given various Guidelines for the issue of debentures. Before we look deep into the list of guidelines, some of the post on debentures like Rights debentures for working capital
, Importance of debentures in capital structure of a company
, SEBI Guidelines on Fresh capital Share, Primary markets & secondary markets
may be of interest to you.
Guidelines of SEBI for the issue of debentures
1. Guidelines will be applicable for the issue of convertible and nonconvertible debentures by public limited as well as public sector companies.
2. Debentures can be issued for the following purposes:
- For starting new undertakings
- Expansion or diversification
- For modernization
- Merger/amalgamation which has been approved by financial institutions
- Restructuring of capital
- For acquiring assets
- For increasing resources of long-term finance.
3. Issue of debentures should not exceed more than 20% of gross current assets and also loans and advances.
4. Debt-equity ratio in issue of debentures should not exceed 2:1. But this condition will be relaxed for capital intensive projects.
5. Any redemption of debentures will not commence before 7 years since the commencement of the company.
6. For small investors for value such as Rs. 5,000, payments should be made in one installment.
7. With the consent of SEBI, even non-convertible debentures can be converted into equity.
8. A premium of 5% on the face value is allowed at the time of redemption and in case of non-convertible debentures only.
9. The face value of debenture will be Rs. 100 and it will be listed in one or more stock exchanges in the country.
10. Secured debentures will be permitted for public subscription.