Previously, the FEMA regulations and the SEBI FPI regulations permitted investment by foreign portfolio investors (FPIs) in unlisted debt securities only in those companies engaged in the infrastructure sector. RBI and SEBI, in order to enhance the investor base in unlisted debt securities and securitised debt and to give a boost to the corporate debt market, have decided to expand the basket of eligible investments for investments by FPIs under the corporate bond route to include the following:
- Unlisted corporate debt securities in the form of non-convertible debentures/ bonds issued by public or private companies subject to a minimum residual maturity of three years and end use restriction on investment in real estate business, capital markets and purchase of land.
- The following securitised debt instruments, which shall not be subject to a minimum residual maturity of three years: a). any certificate or instrument issued by a special purpose vehicle set up for securitization of assets where banks, financial institutions or NBFCs are originators; and/or b). any certificate or instrument issued and listed in terms of the SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008.
Such investments shall be subject to a limit of Rs. 350 billion within the extant investment limits prescribed for corporate bonds from time to time (currently is Rs. 2,443.23 billion). As on December 02, 2016, the total investment by FPIs in corporate bonds stands at Rs. 1,727 billion which amounts to 70.69% of the total limit. Unlisted companies stand to gain from these changes as they have an additional source of borrowing and this also serves to deepen the corporate bond market in India, if Indian companies happen to find this route of fund raising to be attractive.