Changes in Re-investment period of FII debt limit
Summary
This circular withdraws the re-investment facility for new FII debt limit allocations effective immediately. Existing limits are permitted to continue under specific thresholds or until January 2, 2014, after which they lapse upon sale or redemption. Special provisions apply to long-term infra debt categories regarding limit transfers during and after lock-in periods.
Text
It has been decided that henceforth re-investment period shall not be allowed for all new allocations of debt limit to FIIs/sub-accounts. Thus, limits acquired in the bidding sessions henceforth shall expire/lapse on either sale or redemption at maturity of the debt investments.
As on the date of the issuance of this circular those FIIs and sub-accounts that already have acquired limits and /or invested in debt, these existing limits shall expire in the following manner:- a. Facility of re-investment shall continue until any one of the following thresholds is breached i. Total sales made from the existing debt portfolio... is twice the size of its debt portfolio as on the date of this circular or ii. expiry of two years from the date of this circular i.e. January 02, 2014
After the threshold as mentioned above is breached, in case of any sale or redemption of the investments, the limit shall expire/lapse. These limits then shall again be allocated in subsequent bidding processes.
It is clarified here that the FII/sub-account is not required to sell its investments in debt instrument after it reaches the threshold mentioned above, and thus it can continue to retain the debt investments beyond the threshold, however, the sale or redemption thereon will not be eligible for re-investment beyond the thresholds above.
For all new allocations of debt limit under this category, if a FII decides to sell their holdings during lock-in period to another FII; the limit will automatically transfer to purchasing entity. However, if a FII decides to sell/redeem their holdings after lock-in period; same limit shall expire/lapse.
Similar facility as provided in para 3 & 4 above shall also be applicable for all investments made in the long term infra debt category (with one year lock in and one year residual maturity clause) where lock in provisions are in force.
During the lock-in period, if a FII/sub-account decides to sells its investments in the special trading window as provided by the exchanges in terms of SEBI circular dated March 31, 2011, selling FII/ sub-account may exercise its option to sell its investments along with the limits or may choose to sell only the investments and retain the limits.
Entities can avail of the benefit of Para 7 (a) if it is sells the investments to another another FII/sub-accounts after lock-in period; however this benefit can be availed only upto January 02, 2014.
Upto January 02, 2014, if the FII/Subaccount redeems the investments at the maturity of the instrument, or sells to a domestic participant after the lock-in period, it can avail benefit of para 3 of this circular.
Source: SecMarx — Changes in Re-investment period of FII debt limit. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.