Reserve Bank of India (‘RBI’) has issued a circular vide A.P. (DIR Series) Circular No. 19 dated 17th November, 2016 with respect to Investment by Foreign Portfolio Investors (‘FPI’) in corporate debt securities.
In term of paragraph 1 of Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, FPI are permitted to invest only in listed or to-be-listed debt securities. Investment in unlisted debt securities is permitted only in case of companies in the infrastructure sector.
With reference to announcement made in Union Budget 2016-17, it has now been decided to expand the investment basket of eligible instruments for investment by FPIs under the corporate bond route.
The eligible instruments shall include the following in addition to those prescribed under existing position:
1. Unlisted debt securities
It means non-convertible debentures/bonds issued by public or private companies.
Minimum residual maturity – 3 years
Restriction on end use - Investment in real estate business, capital market and purchase of land.
Real estate business: "Real estate business" means dealing in land and immovable property with a view to earning profit therefrom and does not include development of townships, construction of residential commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. Further, earning of rent income on lease of the property, not amounting to transfer, will not amount to real estate business. (as defined in Notification No.FEMA.362/2016-RB dated February 15, 2016)
2. Securitised debt instruments
(a) any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s where banks, FIs or NBFCs are originators; and/or
(b) any certificate or instrument issued and listed in terms of the SEBI Regulations on Public Offer and Listing of Securitised Debt Instruments, 2008.
Minimum residual maturity – period of 3 years is not applicable for Securitised debt instruments.
Limit on investment
It is to be taken into consideration that investment by FPIs in the unlisted corporate debt securities and securitised debt instruments as defined hereinabove shall not exceed Rs. 35,000 crore. Such investment limit shall form part of the existing investment limit prescribed for corporate bond which at presents amounts to Rs. 2,44,323 crore.