In a bid to ease doing business, market regulator Sebi on Friday allowed AIFs (Alternative Investment Funds) to pledge their shares in companies investing in the infrastructure sector.
The regulator has provided alternative investment funds and their investors with additional flexibility to deal with unbundled investments in their schemes.
“Category I and II Alternative Investment Funds may incur equity interests of investee companies engaged in the business of project development, operation or management in any infrastructure sub-sector,” Sebi said in a circular.
This move will provide such alternative investment funds with ease and flexibility in conducting business.
Experts believe that allowing alternative investment funds to leverage equity investments in infrastructure sector companies is crucial for infrastructure development for project financing purposes.
Earlier, AIFs contravened the provisions of the AIF Regulations by pledging securities held by investee companies against loans received by investee companies.
Sebi in its circular said that the existing schemes of Category I and Category II AIFs which have not admitted any investor before April 25, 2024 may create a burden on the equity of the investing entity for the purpose of the borrowing entity. This requires making such understanding in its Private Placement Memorandum (PPM) and clear disclosure of associated risks.
If liabilities are created without disclosure, such liabilities will exist only if investor consent is obtained prior to October 24, 2024, otherwise they must be removed.
The regulator said the borrowings should be used for specific purposes and the liability period should not exceed the life of the scheme.
SEBI also said foreign-invested alternative investment funds must comply with RBI norms. In case of default by the borrower, the AIF has no liability beyond the security interest. However, alternative investment funds cannot guarantee investee companies.
In addition, alternative investment funds cannot impose burdens on their investments in foreign investment companies.
The Alternative Investment Fund Standards Setting Forum will work with SEBI to formulate implementing standards to ensure that any burden on the equity of investee companies by these Alternative Investment Funds is used only to facilitate the raising of credit to the infrastructure sector.
In a separate notice, the regulator has given Alternative Investment Funds and their investors more flexibility to deal with continuous investments in their schemes.
During the liquidation phase of the plan, the AIF may transfer or liquidate unsold investments to the investors, subject to the approval of at least 75% of the investors by value. Regulators will accept the investment if the investors do not agree.
The AIF/Manager must tender at least 25% of the outstanding investment value before obtaining investor consent. Bids must cover all outstanding investments in the scheme’s portfolio and may involve multiple bidders. Also, they have to disclose details such as the proposed liquidation period, outstanding investment information and estimated bid value range.
In addition, two independent valuers should immediately evaluate the investment.
Before the end of the liquidation period, the AIF/Manager must inform SEBI of its decision to seek the consent of the investors and enter into the liquidation period.
During the liquidation period, if the AIF fails to obtain the investor consent required for liquidation or to enter into physical distribution, the unliquidated investments will be forced to be distributed to the physical investors without the need to obtain 75% consent. Investors calculate the investment value in their AIF scheme,” Sebi said.
The regulator has decided to provide one-time flexibility to alternative investment fund schemes whose liquidation period has expired or is due to expire on July 24, 2024. Such schemes will be given a fresh liquidation period till April 24, 2025.
However, this extension is applicable only to those schemes which have no pending investor complaints regarding non-receipt of funds or securities.
(Only the headlines and images in this report may have been reworked by Business Standards staff; the rest of the content was automatically generated from syndicated sources.)
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