Investments by FPIs in Corporate Debt
Summary
This circular modifies the Combined Corporate Debt Limit (CCDL) mechanism for Foreign Portfolio Investors by introducing an auction process when utilization exceeds 95%. It mandates that depositories halt purchases and initiate auctions on exchanges to allocate remaining limits, with specific procedural rules for bidding and allocation. Additionally, it imposes dematerialization and maturity requirements for unlisted corporate debt investments.
Text
This has reference to the SEBI circular SEBI/HO/IMD/FPIC/CIR/P/2016/67 dated August 04, 2016 whereby the Corporate debt limit of INR 244,323 cr for FPIs was redefined as the Combined Corporate Debt Limit (CCDL) for all foreign investments in Rupee denominated bonds issued both onshore and overseas by Indian corporates.
In partial modification to Para 4 of the said circular, the CCDL shall be available on tap for investment by foreign investors till the overall investment reaches 95%, after which, the auction mechanism shall be initiated for allocation of the remaining limits.
The depositories (NSDL and CDSL) shall direct the custodians to halt all FPI purchases in corporate debt securities.
The depositories shall then inform the exchanges (NSE and BSE) regarding the unutilised debt limits for conduct of auction. Upon receipt of information from the depositories, the exchange (starting with BSE) shall conduct an auction for the allocation of unutilised debt limits on the second trading day from the date of receipt of intimation from the depositories. Thereafter, the auction shall be conducted alternately on NSE and BSE.
The auction shall be held only if the free limit is greater than or equal to INR 100 cr. However, if the free limit remains less than 100 cr for 15 consecutive trading days, then an auction shall be conducted on the sixteenth trading day to allocate the free limits.
The auction shall be conducted in the following manner : Duration of bidding: 2 hours (15:30 to 17:30 hrs), Access to platform Trading members or custodians, Minimum bid INR 1 crore, Maximum bid One-tenth of free limit being auctioned, Tick Size INR 1 crore, Allocation Methodology Price time priority, Pricing of bid Minimum flat fee of INR 1000 or bid price whichever is higher, Time period for utilization 10 trading days from the date of allocation of the limits.
Once the limits have been auctioned, the FPIs will have a utilisation period of 10 trading days within which they have to make the investments. The limits not utilised within this period shall come back to the pool of free limits.
Upon sale/redemption of debt securities, the FPI will have a re-investment period of 2 trading days. If the reinvestment is not made within 2 trading days, then the limits shall come back to the pool of free limits.
A single FPI/ FPI Group cannot bid for more than 10% of the limits being auctioned.
The subsequent auction would be held 12 trading days after the previous auction, subject to the fulfilment of the condition mentioned at Point (3c) above.
As Rupee denominated bonds issued by Indian corporates overseas are covered under CCDL, issuance of such bonds overseas shall temporarily cease, until the limit utilisation falls back to below 92%.
The auction mechanism shall be discontinued and the limits shall be once again available for investment on tap when the debt limit utilisation falls below 92%. It is clarified that in such a scenario, the reinvestment facility mentioned at Point (3f) shall be terminated and cannot be availed for the same limits when the utilisation crosses 95% again. The custodians shall monitor and report the reinvestment facility availed by the FPIs to the depositories.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Investments by FPIs in Corporate Debt. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.