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Through a consultation paper, SEBI has proposed that Category I and II AIFs could borrow funds for meeting shortfall in drawdown.
At times, AIFs face shortfall in funds due to delay in realization of investments amount when there is an investment opportunity. AIFs may now borrow to pursue such an opportunity.
It clarified, “Category I and II AIFs may borrow for the purpose of meeting shortfall in drawdown while making investment in an investee company.” However, the regulator has proposed certain conditions here.
- Borrowing to be done only in case of emergency as a last recourse
- Amount borrowed to not exceed 10% of the investment proposed to be made in the investee company
- Cost of borrowing to be charged only to investor who delayed/defaulted on drawdown payment
- Disclosure in the PPM of the scheme and to all investors
- Borrowings to be made only once for meeting shortfall with respect to drawdown from same investor
- Borrowings to not be used to schedule different drawdown timeline for different investors
“Category I and Category II AIFs shall maintain thirty days cooling off period between two periods of permissible leverage as provided in AIF Regulations.”, said the regulator.
It also made other proposals in the said consultation paper.
Dematerialisation
- AIFs to hold instruments/securities of investments only in dematerialised form, except in the case of instruments/securities for which dematerialisation is not available
- AIF(s) to dematerialise existing investments in investee companies where AIF(s) have controlling interest in six months
Custodian
- Small sized AIFs i.e. with corpus of less than Rs.500 crore as well will have to appoint a custodian within 6 months
- Such a custodian should not be an associate of manager/sponsor/trustee of AIF
- Custodians will be responsible for monitoring AIF investments
Tenure extension - Large Value Fund for Accredited Investors (LVFs)
- Large Value Fund for Accredited Investors (LVFs) may extend their tenure up to four years, subject to approval of two-thirds of the unit holders by value investment in the LVF
Registration renewal
- AIF to pay renewal fee (50% of its applicable registration fee) for the subsequent block of five years from the date of grant of registration, within three months before expiry of the block period
- Existing AIFs who have completed five years from the date of grant of certificate of registration to pay renewal fee (50% of its applicable registration fee) within three months of issuance of notification and thereafter every subsequent block of five years from the date of fee payment
- Failure to pay renewal fee to be subject to late fee of 2% of registration fee for each day of delay, up to a maximum of two times of the registration fee. Post which, the registration certificate will be liable for suspension/cancellation
- Until the renewal fee is paid, AIFs to not accept any fresh commitment or make investment in a new investee company in any of their schemes, and shall not launch new schemes
- Custodian to monitor the compliance of these provisions
The regulator has invited public comments on the consultation paper by May 31, 2023 in a designated format.
Click here to view the consultation paper and the process of submitting comments.