SEBI has, by way of a notification dated February 27, 2017, amended the provisions of the SEBI (Foreign Portfolio Investors) Regulations, 2014 to permit registered FPIs to invest in (i) unlisted non-convertible debentures (‘NCDs’)/bonds issued by an Indian company subject to the guidelines issued by the Ministry of Corporate Affairs and (ii) securitized debt instruments, including certificates/instruments issued by special purpose vehicles set up for securitization of assets with banks, financial institutions or non-banking financial companies (‘NBFCs’) as originators, and certain listed securitized debt instruments. Additionally, SEBI has specified by its circular dated February 28, 2017, that investment by FPIs in unlisted corporate debt securities in the form of NCDs/bonds will be subject to minimum residual maturity of three years along with an end use-restriction on investments in ‘real estate business’, capital market and purchase of land. SEBI has also clarified that investment by FPIs in securitized debt instruments will not be subject to the minimum three-year residual maturity requirement. SEBI has also specified that investments in unlisted corporate debt securities and securitized debt instruments will be permitted up to an aggregate of Rs. 35,000 crores (approximately US$ 5.4 billion) within the existing investment limits prescribed for corporate debt from time to time (presently, Rs. 244,323 crores (approximately US$ 38 billion)).

RBI had earlier, by way of a notification dated October 24, 2016, introduced corresponding amendments to FEMA 20 and prescribed similar conditions for such investments by an FPI by way of a circular dated November 17, 2016. A summary of these RBI notifications has been captured in our January 2017 edition of Inter Alia.

Further, SEBI has also amended the definition of ‘offshore derivative instrument’ to permit FPIs to issue instruments with the underlying being unlisted debt securities or securitized debt instruments held by such FPI.