SEBI Unveils Norms For Zero Coupon Zero Principle Instruments by NPOs

Context: The Securities and Exchange Board of India (SEBI) has issued guidelines for public issuance of zero coupon zero principle instruments by not-for-profit organisations (NPOs) and listing of such instruments on the Social Stock Exchange (SSE).

SEBI Norms for Public Issuance of Zero Coupon Zero Principle Instruments by NPOs

• Not Transferable: Such instruments will be issued in dematerialised form only and are not transferable.
• Minimum Sizes:  The minimum issue size has been set at Rs 50 lakh. 
  • The minimum application size at Rs 10,000. 
  • The minimum subscription required to be achieved will be 75 per cent of the funds proposed to be raised through issuing such instruments.
• Process for listing on SSE: 
  • Filing of Draft Document: NPO must file the draft fundraising document with the SSE through the lead manager and an application seeking in-principle approval for listing the instrument on the SSE. 
  • The SSE will provide its observation on the draft fundraising document to the NPO within 30 days of filing the papers or receipt of clarification, if any, sought by the exchange from the NPO, whichever is later.
  • NPO will incorporate the observations of the SSE in a draft document and file the final papers to the SSE before opening the issue. The SSE must specify the details in the fundraising document.
• Under-Subscription: The funds will be refunded if the subscription is less than 75 per cent of the issue size.
• Maintenance of records:  SSE will be required to maintain the details of the allotment following the issuance of zero coupon zero principle instruments by an NPO. 
  • SSE will have to specify the additional norms concerning the issue procedure, such as agreements with depositories, banks, duration for public issuance, allocation methodology and any other ancillary matter related to the issue procedure.

About Zero Coupon Zero Principle Instruments

• Zero coupon zero principle instruments (ZCZP) are financial instruments that a non-profit organisation may use to raise funds.When an entity issues these securities and raises money, it is not a loan but a donation. 
  • The borrowing entity does not have to pay interest—therefore zero coupon—and does not have to pay the principal (zero principal) either.
  • Like any other debt instrument, it will come with a time duration.
• Any individual or corporate can buy the security through SSE once they are open for business.
• The Finance Ministry had declared zero coupon zero principle instruments (ZCZP) as securities for the Securities Contracts (Regulation) Act, 1956.
• These instruments will be governed by rules by the SEBI.
• Significance: It will help organizations and corporates to utilize their social responsibility funds and support non-profit organizations more transparently.

To know more about SSE: Refer to Social Stock Exchange

News Source: IE