FII investment limit in corp bonds raised to $25 bn

In line with the Budgetary announcement, the capital markets regulator on Thursday raised the investment limit of Foreign Institutional Investors (FIIs) to $25 billion in corporate bonds issued by companies in the infrastructure sector with a residual maturity of over five years. Earlier, the limit was $5 billion.

FIIs are now eligible to invest in unlisted bonds issued by companies in the infrastructure sector that are generally organised in the form of special purpose vehicles. Investments thus made will have a minimum lock-in period of three years, during which FIIs are allowed to trade among themselves.

During this period, however, the investments cannot be sold to domestic investors. The move is likely to enhance the flow of funds into the infrastructure sector in the country. In order to facilitate FIIs during the lock-in period, a special trading window would be provided at the exchanges on the same lines as is available for equities in companies where the overall FII investment has touched the maximum limit.

In a note, the Securities and Exchange Board of India (Sebi) has said FIIs can avail of these limits without obtaining the regulator’s approval till the overall FII investment reaches 90 per cent ($22.5 billion).

This way the regulator has decided to do away with the earlier allocation methodology for investment in corporate debt in the long-term infra category, wherein no single entity was allocated more than Rs 2,000 crore of the investment limit. Once the limit of 90 per cent is reached, the earlier process of allocation will be initiated, which involves bidding and first come first serve methods.

In November last year, Sebi had increased the FII limit to $5 billion, which was to be invested in corporate bonds with residual maturity of over five years, issued by companies in the infrastructure sector.