Market regulator Securities and Exchange Board of India (SEBI), on Wednesday, eased
the rules for foreign portfolio investors (FPI) doing away with the broad-based eligibility criteria for FPIs and announced that the registration for multiple investment manager structure would be simplified.
FPIs will now be re-categorised into two classes—Category I and II, instead of the present three categories. Besides, the documentation requirements for KYC (know your customer) have been simplified.
Proposing the new regulations for FPIs, SEBI chairman Ajay Tyagi said that central banks shall also be eligible for FPI registration. This decision was taken considering that the central banks are relatively long-term, low-risk investors directly/ indirectly managed by the Government.
FPIs will be allowed off-market transfer of securities which are unlisted, suspended or illiquid, to a domestic or foreign investor. Offshore funds floated by Indian mutual funds will be able to invest in India after obtaining registration as FPI.
Some of the other changes announced by SEBI were:
Mutual Funds Can Now Invest in Unlisted NCDs
SEBI will allow mutual funds (MFs) to invest in unlisted non-convertible debentures (NCDs) up to a maximum of 10% of the debt portfolio of the scheme subject to such investments in unlisted NCDs having simple structures as may be notified from time to time, being rated, secured and with monthly coupons. This shall be implemented in a phased manner by June 2020. Tyagi said the regulator is examining the possibility of allowing MFs to join inter-creditor arrangements.
Rating Agencies to Have Quicker Access to Credit Default Information
In order to enable CRAs to have timely information on the default of an entity, SEBI (CRA) Regulations were amended to incorporate an enabling provision in the rating agreement between the CRA and the issuer/ client, providing explicit consent to the CRA to obtain details of the existing and/ or future borrowing of the issuer, its repayment and any delay or default in servicing of such borrowing, either from the lender or any other statutory/ non-statutory organisation maintaining any such information.
Review of Buy-backs
SEBI shall continue with the current approach of allowing buybacks if post buy-back debt to equity ratio is not more than 2:1 (except for companies for which higher debt to equity has been notified under the Companies Act, 2013) based on both standalone and consolidated basis. Further, if post buy-back debt to equity ratio is not more than 2:1 on standalone basis and exceeding 2:1 on consolidated basis, in such cases, buy-back would be permitted if:
i. Post buyback debt to equity ratio is not more than 2:1 on consolidated basis after excluding the subsidiaries that are non-banking financial companies and housing finance companies and are regulated by RBI or National Housing Bank; and
ii. All such excluded subsidiaries have debt to equity ratio of not more than 6:1 on standalone basis.
Further, the financial statements will continue to be considered on both standalone and consolidated basis for calculating the maximum permissible buy-back size and other related requirements relating to buy-back size.
Innovators Growth Platform (IGP) Cos Permitted to Trade under Regular Category
Companies listed for a minimum period of one year on the Innovators Growth Platform (IGP), having minimum 200 shareholders and profitability/net worth track record of 3 years or 75% of its capital held by Qualified Institutional Buyers can apply for trading under regular category.
Minimum promoters’ contribution shall be 20% which shall be locked in for 3 years. Period of earlier lock-in of 6 months served at the time of listing on IGP shall be deducted from the stipulated lock-in requirement of 3 years.