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SEBI has issued a circular in which it has asked AIFs to do specific due diligence of certain investors to prevent any violation of laws.
The standards for the due diligence will be set by Standard Setting Forum for AIFs (SFA). The investors specified by the circular are as under:
Qualified Buyers (QBs) and Qualified Institutional Buyers (QIBs)
- AIFs will conduct due diligence before giving benefits of Qualified Buyers and Qualified Institutional Buyers to investors who constitute over 50 percent of the corpus of the scheme
RBI regulated entities
- In case of RBI regulated entities ever greening their stressed loans through AIF, i.e. giving loans to borrowers who are on the verge of default, AIFs will have to carry out specific due diligence
- In case of an investor being another AIF or an overseas fund or a fund set up in International Financial Services Centre (IFSC), the due diligence will be done on a look through basis
- AIFs will also have to ensure that they do not invest in companies in which these entities are not allowed to have an interest or exposure
- In the event of the investment not passing the due diligence checks for any of the investors, the AIF will either have to exclude such investors and make disclosure in the Private Placement Memorandum (PPM) or not make the particular investment
- If AIFs have an existing investment that does not satisfy the due diligence checks, such investments will have to be reported to the custodian of the AIF before April 7, 2025
- If all existing investments of an AIF satisfy the due diligence checks then the AIF will have to submit an undertaking for the same to the custodian before April 7, 2025
Investors from countries that share a border with India
- AIFs will also have to carry out due diligence for investors from countries who share a land border with India and contribute 50% or more of the corpus of the AIF
- If such schemes are planning to do investments where they would hold over 10% of equity or equity-linked securities of a company on a fully-diluted basis then the details of this investment will have to be shared with the custodian within 30 days of investment
- If there are any such existing investments then their details will have to be submitted to the custodian on or before April 7, 2025
The implementation standards set by SFA will be issued on the websites of industry associations like Indian Venture and Alternate Capital Association (IVCA), Private Equity Venture Capital and Chief financial Officer (PEVC and CFO) Association and Trustee Association of India within 1 day.
The circular will come into effect immediately.