Tag Archive for: Market Linked Debentures

Palak Jaiswani, Manager | corplaw@vinodkothari.com

Debentures, one of the most common means for raising debt funding, where investors lend money to the issuer in return for periodic interest and repayment of principal at maturity. While the basic feature of any debenture is a fixed coupon rate and a defined tenure (commonly referred to as plain vanilla instruments), sometimes these instruments may be topped up with enhanced features such as additional credit support, market-linked returns, convertibility option, etc., thus referred to as structured debt securities.

Structured debt securities: motivation for issuers

Apart from the economic favouring such structural modifications, a primary motivation for the issuer in issuing such structured instruments might be the regulatory advantages that these securities offer. For instance,

• Chapter VIII of SEBI NCS Master Circular provides an extra limit of 5 ISINs for structured debt securities & market-linked securities, thus more room for the issuers to issue debt securities, compared to the restriction of a maximum of 9 ISINs for plain vanilla debt.
• In addition, as per NSE Guidelines on Electronic Book Provider (EBP) mechanism, market-linked debentures are not required to be routed through EBP, allowing issuers to place such instruments almost like an over-the-counter trade. This allows issuers to structure the debt securities on a tailored basis and offer them directly to specific investors.