RBI to allow FPIs to invest in unlisted debt securities

In order to develop the corporate bond market, the RBI today invited comments from stakeholders to expand the scope of investment by foreign portfolio investors (FPIs) in unlisted debt securities and securitised debt instruments.
In the Union Budget 2016-17, the government had proposed to expand the investment basket of FPIs by allowing them to put capital in unlisted debt securities and pass through securities issued by securitisation special purpose vehicles so as to develop the corporate bond market.
RBI in consultation with the Finance Ministry, today put a draft circular on its website, proposing to allow investment by FPIs in these instruments.

"It has now been decided to expand the investment basket of eligible instruments for investment by FPIs under the corporate bond route to include unlisted debt securities and securitised debt instruments," the RBI said.
As per the draft circular, FPIs can now invest in the primary issues of non-convertible debentures/bonds by a public company.
Such investment would be permitted only if the issuing company does not use the borrowing proceeds for real estate activities, purchase of land, investing in capital market or on-lending to other entities, it added.

For securitised debt instruments, RBI said FPIs can invest in any certificate or instrument issued by a special purpose vehicle set up for securitisation of assets where banks, FIs or NBFCs are originators.

As per earlier rules, foreign portfolio investors (FPI) were permitted to invest only in listed or to-be-listed debt securities.
Investment in unlisted debt securities was permitted only in case of companies in the infrastructure sector. Investment by FPIs in securitised debt instruments was not permitted.
RBI has invited comments and feedback on the draft circular by May 25, 2016.