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SEBI Allows FPIs to Invest in Unlisted Corporate Bonds

Press Trust Of India

First published: November 23, 2016, 5:59 PM IST | Updated: November 23, 2016
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SEBI Allows FPIs to Invest in Unlisted Corporate Bonds
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With an aim to deepen capital markets, regulator Sebi on Wednesday decided to permit FPIs to invest in unlisted corporate debt securities and securitised debt instruments with a ceiling of Rs 35,000 crore.

The decision was taken at the board meeting of the Securities and Exchange Board of India (Sebi).

As per the amendment to the FPI regulations, approved by the board, foreign portfolio investors (FPIs) will be allowed to invest in unlisted non-convertible debentures and securities debt instruments. RBI has also recently relaxed its rules for allowing such investments by FPIs.

The move comes after the Sebi board, in September, allowed well-regulated FPIs to directly trade in corporate bonds, without going through any broker or other intermediary.

Currently, investment in unlisted debt securities is permitted only in the case of companies in the infrastructure sector. Further, investment by FPIs in securitised debt instruments is not permitted.

Sebi said its board has decided that in order to enhance the investor base in unlisted debt securities and securitised debt instruments, FPIs shall be permitted to invest in the Unlisted corporate debt securities in the form of non-convertible debentures (NCDs) or bonds issued by an Indian public or private company.

"Investments in the unlisted corporate debt securities shall be subject to minimum residual maturity of three years and end use-restriction on investment in real estate business, capital market and purchase of land.

"The expression 'Real Estate Business' shall have the same meaning as assigned to it in Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations," Sebi said.

Besides, the board permitted FPI investment in securitised debt instruments, including certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset with banks and other financial institutions. The permitted avenues will also include certificate or instrument issued and listed in compliance of Sebi norms.

"Investment by FPIs in the unlisted corporate debt securities and securitised debt instruments shall not exceed Rs 35,000 crore within the extant investment limits prescribed for corporate bond from time to time, which currently is Rs 2,44,323 crore.

"Further, investment by FPIs in securitised debt instruments shall not be subject to the minimum three-year residual maturity requirement," Sebi said.

The measures will come into force after issuance of a circular for amendment of FPI regulations.

Overall, FPI investment in corporate debt in India currently stands at over Rs 1.72 lakh crore, which is over 70 per cent of the permitted limit.

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