Capital markets regulator Securities and Exchange Board of India (Sebi) has introduced a framework for Special Situation Funds (SSFs) that will invest only in stressed assets under Category I Alternative Investment Funds (AIFs), the regulator said in a notification on Monday.
Till now, Sebi’s category I AIFs included infrastructure funds, SME funds, angel funds, social and venture capital funds.
The move comes against the backdrop of increased government efforts to address the large pile of stressed loans and non-performing assets (NPAs)in the banking system at around Rs 8-10 lakh crore ($10-13 bilion).
As per the latest notification, SSFs will invest only in “special situation asset” which includes stressed loans available for acquisition as defined by the Reserve Bank of India (RBI) or as amended from time to time or as part of a resolution plan approved under the Insolvency and Bankruptcy Code (IBC).
These funds will also invest in security receipts issued by Asset Reconstruction Companies (ARCs), securities of companies in distress and any other asset or security as may be prescribed by the board from time to time.
"Each scheme of a special situation fund shall have a corpus as may be specified by the Board (SEBI),” the regulator said.
Further, SSFs will not accept investments from any other AIF other than a special situation fund.
In its board meeting in December, Sebi approved the introduction of Special Situation Funds (SSFs) for investment restricted to only stressed assets with a minimum corpus of Rs 100 crore. Other AIFs have a minimum corpus of Rs 20 crore.
Sebi had also said that the minimum investment by an investor seeking to invest in a stressed fund is Rs 10 crore, whereas it can be Rs 5 crore in the case of an accredited investor. This is higher than Rs 1 crore requirement that the categories of AIFs in India except angel funds which is at Rs 25 lakh.
Most importantly, the Sebi board has exempted SSFs from the norm that bars concentration of stake in a single investee company. It said there will also be no restriction on their investing in unlisted or listed securities of the investee company. This move, experts say, will provide more flexibility to investors to tailor their investments and bring more domestic investors into play.
Meanwhile, the regulator has specified that an SSF must not invest in its associates or the units of any other AIF other than the units of an SSF or even those sponsored by their sponsor.