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Sebi allows FPIs to directly trade in corporate bonds

Sebi has allowed REITs and InvITs to invest in a two-level SPV structure. That means these trusts can invest in a holding firm which owns other SPVs which are direct owners of realty assets

SEBI, FPI, investment trusts, private equity, equity, SEBI FPI, SEBI trusts, news, latest news, business news, India news, national news Sebi board also proposed to float a consultative paper on corporate governance issues in compensation agreements between PE funds and promoters of listed investee firms.

The Sebi on Friday allowed well-regulated foreign portfolio investors (FPIs) to trade directly in corporate bonds without a broker, relaxed norms for real estate and infrastructure investment trusts and proposed a consultative paper on corporate governance issues in compensation pacts between private equity funds and promoters of listed investee firms. The Securities and Exchange Board of India’s decision to allow FPIs to trade directly in corporate bond is in line with the August 18 report of the HR Khan panel which suggested certain changes in norms to deepen the existing corporate bond market in India.

At present, FPIs can trade in Indian markets only via brokers who are registered with bourses as members. Sebi’s new norms will allow FPIs to become members of the stock exchanges for their proprietary trading.

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“Category I and Category II FPIs will have an option to directly access corporate bond market without brokers as has been allowed to domestic institutions such as banks, insurance companies, pension funds, etc. Access to Over-the-Counter (OTC), Request for Quote (RFQ) and Electronic Book Provider (EBP) platforms of RSE will be provided to FPIs only for proprietary trading and participation of FPIs will help in deepening the Corporate Bond market,” said a statement.

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Category-I FPIs include sovereign wealth funds and central banks while Category-II FPIs include mutual funds and banks.

Sebi board also proposed to float a consultative paper on corporate governance issues in compensation agreements between PE funds and promoters of listed investee firms. In the paper Sebi has proposed to make it mandatory to take prior approval from shareholders for any such agreements inked by PE investors and promoters/top executives of listed firms. This comes after the regulator found instances of PE funds entering into compensation pacts with promoters, directors and key managerial personnel of listed investee firms, based on performance.

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“We came across an instance… If the price goes up beyond a certain level then the managing director would be given an incentive… It was like a private benefit in a listed company. That we plan to attack. We are concerned about such kind of agreements. We will come out with a discussion paper soon,” said Sebi chairman UK Sinha. The proposed rules will ensure that any special rights given to PE funds are approved by minority shareholders.

The market watchdog has also decided to ease rules for setting up REITs and InvITs in order to make them attractive for companies for raising capital. Sebi had in 2014 notified the REIT and InvIT Regulations in 2014, however, no single Trust has been set up as yet as investors wanted further measures to make these instruments more attractive.

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Now Sebi has allowed REITs and InvITs to invest in a two-level special purpose vehicle structure. That essentially means these trusts can invest in a holding company which owns other SPV companies that are direct owners of real estate and road assets. These are conditional to the trusts being allowed to appoint directors in SPVs and being given access to 100 per cent of cash flows in the holding firm.

Moreover, InvITs can have any number of sponsors now from three earlier and REITs can invest up to 20 per cent in under-construction projects. Sebi also increased the limit of foreign investment in Indian bourses from 5 per cent to 15 per cent. It has also suggested tighter rules for investment advisors that will be part of a separate consultation paper.


 

First uploaded on: 24-09-2016 at 00:32 IST
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