RBI permits zero-coupon NCDs

The Reserve Bank of India (RBI) has allowed companies to issue zero-coupon non-convertible debentures (NCD) at a discount to the face value, according to the final guidelines for issuance of the debt instruments.

It released final guidelines for the issuance of the debt instruments with original maturity of up to one year. These directions will become effective from August 1.

In addition, no corporate with a tangible net worth of less than Rs 4 crore will be permitted to issue an NCD. The company will also have to ensure that it has sanctioned working capital limit or term loan by banks or financial institutions and that its borrowal account is classified as a standard asset.

The central bank had released draft guidelines in November 2009 for public comment. As proposed in the draft guidelines, RBI has barred companies from issuing NCDs with a maturity period of less than 90 days.

An eligible corporate intending to issue NCDs will have to obtain a credit rating for issuance of the NCDs from a rating agency and the minimum credit rating shall be P-2 of CRISIL or the equivalent rating by other agencies.

The total amount of NCDs proposed to be issued will have to be completed within a period of two weeks from the date on which the corporate opens the issue for subscription.

An additional clause that was not present in the draft guidelines is the auditors of the corporate will have to certify to the investors that all the eligibility conditions are met by the corporate.

RBI permitted any entity that is registered as a trustee with the Securities and Exchange Board of India (Sebi) to act as a DT for the NCD issue.