The Securities and Exchange Board of India (SEBI) has revised the norms for foreign institutional investment in long-term corporate bonds issued by infrastructure companies.
Foreign institutional investors (FIIs) are permitted to invest up to US$25 billion in long-term infrastructure bonds. However SEBI has clarified that:
- Qualified foreign investors (QFIs) may invest up to US$3 billion in mutual fund debt schemes which invest in the infrastructure sector.
- FIIs may invest up to US$5 billion in bonds that have an initial maturity of five years or more at the time of issue and a residual maturity of one year at the time of their first purchase. These investments are subject to a lock-in period of one year. During this period FIIs can trade among themselves, but they cannot sell to domestic investors.
- FIIs can invest up to US$17 billion in long-term infrastructure bonds which have an initial maturity of five years or more at the time of issue and a residual maturity of three years at the time of their first purchase. These investments are subject to a lock-in period of three years. During the lock-in period, FIIs are permitted to trade among themselves, but may not sell to domestic investors. In addition, investment by FIIs in infrastructure debt fund (IDF)schemes will be counted towards this US$17 billion limit.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
