Limit Set On FII Investment In Corporate Debt

FIIs buoyed by the SEBI circular dated November 29, 2004 whereby, the SEBI clarified that the cap of US $1.75 billion will be applicable to FII investment in dated Government securities and T-bills only, and not corporate debt (both under 100% debt route and general 70:30 route) were in for a rude shock when the SEBI further clarified on December 2, 2004 vide Circular No. IMD/FII/18/2004 that the Ministry of Finance, Government of India has decided that a cumulative sub-ceiling of US $500 million outstanding would be fixed on FII investments in corporate debt and this would be over and above the ceiling of US $1.75 billion for Government dated securities and T-bills under the overall ECB ceiling.

A number of banks that had invested close to USD 1 billion in corporate debt bonds after the November 29, 2004 SEBI circular are expected to be hit hard by the new development. SEBI has proposed a meeting with FIIs next week in a bid to clear the air and reach some sort of understanding with the FIIs. It is expected that SEBI shall allow investors who already have purchased such corporate bonds a grace period for disposal of these bonds.

Source:

• The Economic Times Article on FII Investment dated December 06, 2004
• SEBI Circular on Limit for investment by FIIs in Corporate Debt dated December 02, 2004
• SEBI Circular on ECB Limit, dated November 29, 2004

Hedge Funds: The Wait Is Not Over

Hedge Funds looking to invest directly into India shall have to wait a little while longer. The high-level committee on capital markets which includes representatives from SEBI, RBI and the finance ministry, has decided that for the time being hedge funds shall not be allowed to register as a separate category of overseas investors in the domestic stock markets.

It may be recalled that SEBI had initially proposed to allow Hedge Funds with at least 20% of the investors being strong institutional players to invest into India.

The decision not to allow Hedge Funds to invest into India comes as a surprise since earlier SEBI had announced draft guidelines for allowing hedge funds to register themselves as FIIs and to invest under the FII route. Hedge Funds have always been viewed with suspicion by the regulators given the fact that such entities are unregulated and it is perceived that such funds bring in volatility to the capital markets.

Source:

• The Economic Times Article on Hedge Funds dated December 06, 2004

You can direct your queries or comments to Siddharth Shah & Kishore Joshi