Enhancing Ease of Doing Business for Category II AIFs
The Securities and Exchange Board of India (“SEBI”) has issued a consultation paper on February 07, 2025, inviting public comments on proposed amendments to Regulation 17(a) of SEBI (Alternative Investment Funds) Regulations, 2012. These amendments aim to address concerns regarding investment in unlisted debt securities following changes introduced by Regulation 62A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Key Issues and Industry Concerns
Current Requirement for Category II AIFs
Category II Alternative Investment Funds (“AIFs”) must invest primarily in unlisted securities (more than 50% of investible funds).
Many debt-focused AIFs rely on unlisted debt securities as their primary investment avenue.
Impact of Recent SEBI LODR Amendments
Mandatory Listing of Debt Securities: Entities issuing listed non-convertible debentures (NCDs) on or after January 1, 2024, must list all subsequent issuances.
This regulation limits the availability of unlisted debt securities, potentially reducing investment opportunities for Category II AIFs.
Industry Representation and SEBI’s Consideration
Industry participants have raised concerns that the shrinking pool of unlisted debt securities could make it difficult for Category II AIFs to comply with existing regulations.
SEBI acknowledges the need to balance regulatory compliance with market realities.
Proposed Regulatory Changes
To mitigate the impact of reduced investment opportunities in unlisted debt securities, SEBI proposes:
1. Expanding Eligible Investment Criteria
Allowing listed debt securities with a credit rating of ‘A’ or below to be included within the mandatory 50% investment threshold for Category II AIFs.
2. Ensuring Credit Risk Alignment
The proposal ensures that AIFs continue to assume credit risk, maintaining their role in providing capital to businesses with limited access to traditional funding sources.
3. Excluding Alternative Parameters
The suggestion to allow investments based on privately placed listed debt securities was reviewed but not considered suitable for Category II AIFs.
Seeking Public Comments
SEBI invites market participants, investors, and stakeholders to submit their comments on the proposal by February 28, 2025.
Conclusion
SEBI’s proposed amendments seek to provide regulatory flexibility while maintaining investment discipline within Category II AIFs. The consultation process ensures that industry concerns are considered, fostering a more adaptable investment framework.
Comentarios