SEBI allows AIFs to pledge
shares in companies that invest in infra sector
To facilitate ease of doing business,
markets regulator SEBI on Friday allowed AIFs (alternative investment funds) to
pledge their shares in investee companies in the infrastructure sector.
The regulator has also provided
additional flexibility to AIFs and their investors to deal with unliquidated
investments of their schemes.
"Category I and Category II AIFs
may create an encumbrance on equity of investee company, which is in the
business of development, operation or management of projects in any of the
infrastructure sub-sectors," SEBI said in a circular.
The move will provide ease of doing
business and flexibility to such AIFs.
Experts believe that allowing AIFs to
create an encumbrance on their equity investments in infrastructure sector
companies for the purpose of project finance is essential for infrastructure
development.
Earlier, pledging of securities held by
an AIF in investee companies for loans availed of by the investee companies
violates provisions of the AIF Regulations.
In its circular, SEBI said that existing
schemes of category I and category II AIFs who have not on-boarded any
investors prior to April 25, 2024, may create an encumbrance on the equity of
the investee company for the purpose of borrowing of the investee company. This
is subject to explicit disclosure with respect to the creation of such
encumbrance in this regard and disclosure of associated risks in their private
placement memorandums (PPMs).
If encumbrances were created without
disclosure, then such encumbrances can continue only with investor consent by
October 24, 2024, or must be removed.
The regulator said that borrowings must
be used for the specified purposes, and the duration of encumbrances should not
exceed the scheme's tenure.
Also, SEBI said that foreign-invested
AIFs must comply with RBI regulations. In case of borrower default, AIFs are
not liable beyond the encumbered equity. However, AIFs cannot offer guarantees
for investee companies.
Moreover, AIFs have been prohibited from
creating encumbrances on their investments in foreign investee companies.
The Standard Setting Forum for AIFs,
along with SEBI, will create implementation standards to ensure that any
encumbrances created on the equity of investee companies by these AIFs are only
used for facilitating debt raising in the infrastructure sector.
In a separate circular, the regulator
has provided more flexibility to AIFs and their investors to deal with
unliquidated investments of their schemes.
During the liquidation phase of a
scheme, an AIF can give unsold investments to investors or go into dissolution,
but it needs approval from at least 75 per cent of investors by value. If
investors don't agree, the regulator will take the call on the investments.
Before getting investor consent, the
AIF/manager must arrange bids for at least 25 per cent of the unliquidated
investments' value. The bid should cover all unliquidated investments of the
scheme's portfolio and can involve multiple bidders. Also, they need to
disclose details like the proposed dissolution period, information on
unliquidated investments, and an estimated bid value range.
Further, two independent valuers should
assess the unliquidated investments.
Before the liquidation period ends, the AIF/manager
needs to inform SEBI about obtaining investor consent and their decision to
enter the dissolution period.
"During the liquidation period, if
the AIF fails to obtain requisite investor consent for entering into
dissolution period or in-specie distribution, then the unliquidated investments
shall be mandatorily distributed to investors in-specie, without the
requirement of obtaining the consent of 75 per cent of investors by value of
their investment in the scheme of the AIF," SEBI said.
The regulator has decided to provide a
one-time flexibility to schemes of AIFs whose liquidation period has expired or
will expire by July 24, 2024. Such schemes will get a new liquidation period
until April 24, 2025.
However, this extension is only for
schemes without any unresolved investor complaints regarding the non-receipt of
funds or securities.
www.business-standard.com
dt. 27.04.2024