Investments by FIIs/QFIs in Credit Enhanced Bonds
Summary
The circular permits Foreign Institutional Investors and Qualified Foreign Investors to invest in Credit Enhanced INR Bonds up to a limit of US$ 5 billion. Depositories are mandated to monitor these investments and ensure aggregate holdings do not exceed 90% of the specified limit without prior approval. Procedures for obtaining prior approval, daily reporting, and mandatory divestment of excess holdings in case of breaches are established.
Text
Government of India decided to permit Foreign Institutional Investors (FIIs) to invest in “Credit Enhanced INR Bonds” up to an equivalent of US$ 5 billion within the overall Corporate Bond limit of US$ 51 billion.
The depositories shall monitor FII/QFI investments in credit enhanced bonds, so as to ensure that aggregate investments by FIIs/QFIs in such bonds shall not be more than 90% of the US $ 5 billion limit i.e US $ 4.5 billion.
The Custodian/QDP shall provide on a daily basis, FII/QFI wise, ISIN wise and company wise buy/sell information and any other transaction or any related information to their respective depositories on the same day i.e the day on which the transaction was carried out, before the time stipulated by the depositories.
The depositories shall jointly publish/ disseminate the aggregate investment of FIIs/QFIs in Credit Enhanced Bonds, to public, on a daily basis.
When the aggregate investments of all the FIIs/QFIs reaches 90% of the investment limit, notice informing the same shall be published by the depositories on their websites and no fresh purchases shall be allowed without prior approval of the depositories.
The same shall be informed by the depositories to the Custodians/QDPs and recognized stock exchanges having nationwide terminals. The depositories shall also inform the Custodians/QDPs and stock exchanges when aggregate investments of all the FIIs/QFIs fall below 90% of the investment limits.
For fresh purchases by FIIs/QFIs after the investment limit reaches 90%, prior approval of the depositories shall be obtained. The FII/QFI shall make such request for prior approval to the concerned depository through the Custodians/QDPs specifying therein the name of the FII/QFI, PAN and other unique identification number relating to that FII/QFI...
After market hours, the depository shall give approval to request for purchase on a first-come-first-served basis in co-ordination with the other depository, based on time of receipt of the prior approval requests by the depositories. The validity of the approval shall be for the next two trading days.
In case the aggregate holding of the FII/QFI exceeds overall investment limit, the depositories shall jointly notify the respective Custodians/QDPs regarding the breach along with the names of the FII/QFI due to whom the limits have been breached.
In case the aggregate holding of the FII/QFIs exceeds overall investment limit for whatsoever reason, the FII/QFI due to whom the limit is breached shall mandatorily divest excess holdings within seven working days of such breach being notified by depositories to the DP.
Source: SecMarx — Investments by FIIs/QFIs in Credit Enhanced Bonds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.