What changed
Previously, FIIs could only invest in listed non-convertible debentures/bonds. Now, they can invest in primary issues of NCDs/bonds that are 'to be listed', subject to a mandatory listing within 15 days of investment. If listing fails, FIIs must immediately dispose of the securities, and the issuer must redeem or buyback.
What it means for you
This opens a new avenue for Indian companies to raise debt from FIIs through primary issuances, but with strict timelines. Banks facilitating such investments must ensure the 15-day listing condition is contractually enforced. Failure to list could trigger redemption obligations, impacting liquidity and compliance for issuers and investors.
What you must do
- Inform all constituents and customers about the new FII investment option in primary NCDs/bonds with a 15-day listing commitment.
- Ensure that offer documents for such securities include a clause requiring immediate redemption/buyback by the issuer if listing fails within 15 days.
- Monitor compliance with the 15-day listing timeline and advise FII clients on disposal procedures if listing is delayed.
- Update internal systems to track and report such investments as per FEMA regulations.
Who it affects
AD Category-I banks, SEBI-registered FIIs and their sub-accounts, Indian companies issuing NCDs/bonds, Issuers of debt securities
What happens if the NCDs/bonds are not listed within 15 days?
The FII must immediately sell the securities to a third party or to the issuer. The issuer is required to redeem or buyback the securities as per the terms of the offer.
Does this circular change the existing FEMA regulations?
Yes, necessary amendments to FEMA 20/2000-RB will be issued separately to incorporate this change. Until then, the circular's directions are effective under FEMA sections 10(4) and 11(1).
Who is responsible for ensuring the 15-day listing condition?
The issuer must commit to listing within 15 days, and the offer terms must include a clause for redemption/buyback if listing fails. AD Category-I banks should bring this to the notice of their customers.