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SEBI has recently issued a consultation paper where it has proposed that besides investment in unlisted securities, Cat II AIFs can also invest more than 50% of their investible funds in listed debt securities with credit rating ‘A’ or below.
Currently, Cat II AIFs are required to invest more than 50% of their investment only in unlisted securities.
However, due to the recent Listing Obligations and Disclosure Requirements (LODR) regulations, the entities which have issued listed Non-Convertible Debentures (NCDs) on or before 1st January, 2024 cannot issue an unlisted NCD until any of their listed NCDs are live. In addition, any outstanding unlisted debt security issued before January 1, 2024 may be required to be listed on a stock exchange if any of its unlisted securities are listed.
Due to this, the regulator received feedback from the industry stakeholders that there is a possibility that the investment opportunities for Cat II AIFs in unlisted debt securities may shrink in the future. According to the regulator, there are currently 192 AIF schemes which have over 50% investment in unlisted debt securities which may get affected due to this.
The regulator has also noted the importance of investment of Cat II AIFs in unlisted debt securities as they play a crucial role in providing required capital to industries that may not have access to traditional funding and have not reached the stage of getting listed on a stock exchange.
SEBI adds that this shrinking of investment universe would affect these companies as well as the investors with higher risk appetite who prefer to invest in unlisted debt securities through Cat II AIFs.
As a result, after recommendations from the Alternative Investment Policy Advisory Committee (AIPAC), the regulator has proposed to allow Cat II AIFs to invest more than 50% of their investment corpus in unlisted debt securities or listed debt securities with credit rating ‘A’ or below.
You can comment on this proposal before Feb 28 by visiting this link.
