Mar 31, 2019SEBI Informal Guidance on Investment in Corporate Debt by FPIs
SEBI has issued an interpretative, non-binding letter dated November 28, 2018, to Genpact India Private Limited (‘Genpact’) under the SEBI (Informal Guidance) Scheme, 2003 providing guidance on SEBI (FPI) Regulations, 2014 (‘FPI Regulations’), RBI circulars dated November 17, 2016 and April 17, 2018 and SEBI circular dated February 28, 2017 on Investment by FPIs in debt (collectively the ‘Circulars’).
Genpact had issued certain rated, unsecured, redeemable and non-convertible debentures (‘NCDs’) on a private placement basis to a FPI registered with SEBI (‘FPI Entity’). The NCDs issued had a maturity period of more than three years and were utilized to meet funding requirements for day-to-day operations, downstream investments and general corporate purposes.
Prior to the Circulars, except for infrastructure companies, FPIs were allowed to invest in listed NCDs only. Pursuant to the Circulars, FPIs had been permitted to invest in unlisted corporate debt, subject to a minimum residual maturity of more than one year, and an end-use restriction on investment in real estate business, capital market and purchase of land.
A clarification was sought on whether Genpact is permitted to delist its existing listed NCDs subscribed to by the FPI Entity prior to the date of the Circulars coming into effect and utilize the proceeds of such listed NCDs in making downstream investments on private arrangement basis. In this regard, SEBI was of the view that:
i. There was no violation to the end-use restriction rules for the proceeds raised from the issuance of NCDs as Genpact’s nature of business was in accordance with the said rules; and
ii. On de-listing of NCDs, SEBI was of the view that it depends on the terms of the offer document/private placement memorandum issued by Genpact to the FPI Entity on whether the NCDs are required to be necessarily listed or ‘may be’ listed. If as per the offer document/private placement memorandum, the NCDs have to necessarily be listed, then they should be held till maturity and subsequently de-list in accordance with the procedure set out in Regulation 59 of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015.