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More Investment Options for FPIs

Finsec Law Advisors

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SEBI, through a circular dated March 15, 2016, has expanded the list of securities which Foreign Portfolio Investors (FPIs) can invest in. The SEBI (FPI) Regulations, 2014, state that FPIs can only invest in securities specified under Regulation 21(1) therein. Following RBI’s decision to permit FPIs, through its circular dated November 16, 2015, to invest in Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs) and Alternative Investment Funds (AIFs), SEBI has notified units of REITs, InvITs and Category III AIFs as eligible securities under Regulation 21 of the SEBI (FPI) Regulations, 2014. However, investment in category III AIFs has been restricted to 25%.

Further, SEBI has also permitted FPIs to acquire NCDs/bonds, which are under default, either fully or partly, in the repayment of principal on maturity or principal instalment in the case of an amortising bond. FPIs shall be guided by RBI’s definition of an amortising bond. The minimum maturity period for such restructured bonds would be three years. This is in furtherance of RBI’s enabling notification dated November 26, 2015 which permitted FPIs to acquire NCDs/bonds, which are under default.

This is a welcome move as it widens the scope of foreign investment in vehicles which are designed to invest in two critical economic segments - real estate and infrastructure. In addition, creditors would now be able to restructure NCDs/ bonds which are under default, with the help of foreign capital.