SEBI announces merger of FII debt investment limits into 2 categories

01 Apr 2013

The Securities and Exchange Board of India (SEBI) today announced the merger of the investment limits for foreign institutional investors (FIIs) in government debt and corporate debt into two broad categories, with immediate effect.

Accordingly, government debt (old) of $10 billion and the long-term government debt limit of $15 billion into a $25 billion (equivalent to Rs124,432 crores) limit on government securities.

FII investment limit in corporate bonds has been set at $51 billion by merging the QFI limit of $1 billion, $25 billion limit for FIIs and $25 billion for FIIs in long-term infra bonds.

SEBI also introduced an ''on tap'' mechanism unifying corporate debt categories for allocation of debt limits to eligible FIIs.

The''on tap'' mechanism is currently available in the case of infrastructure bonds.

The government had issued a press release on 23 March 2013 wherein, inter alia, it has proposed measures to simplify the framework of FII debt limits.

Further, SEBI announced the merger of the earlier corporate debt limit of $20 billion for QFIs, the $1 billion limit for qualified institutional investors, $12 billion corporate debt limit for long term infra ($12 billion), $3 billion QFI investment limit in debt mutual fund schemes which invest in infrastructure and $10 billion investment in IDF, to a single category with combined corporate debt limit of $51 billion (equivalent to Rs244,323 crore).

Eligible investors may invest in commercial papers only up to $3.5 billion within the limit of $51 billion.

SEBI had, in a circular dated 27 April 2012, indicated that the auction of debt limits would be conducted on 20th of every month (if 20th happens to be a holiday, auction will be conducted on the next working day), based on availability of free limits at the end of respective previous month.

FIIs can now invest in corporate debt without purchasing debt limits till the overall investment reaches 90 per cent of their overall limit in corporate debt, after which the auction mechanism would be initiated for allocation of the remaining limits, as currently in place for corporate debt long term infrastructure bonds.

SEBI also clarified that consequent to the changes, the facility of re-investment as well as the restrictions on re-investment as given in the earlier SEBI circulars will no longer apply in respect of limits held/investments made by FIIs in the corporate debt category, till the limits are available on tap.