The move comes in response to the shrinking universe of investment opportunities in unlisted debt securities due to recent amendments to the Sebi Listing Obligations and Disclosure Requirements (LODR) Regulations.
According to the LODR amendments, listed entities are required to list all non-convertible debt (NCD) securities on the stock exchange. This has inadvertently resulted in a reduction in the availability of unlisted debt securities for AIFs.
Category II AIFs are required to invest primarily in unlisted securities, with at least 50 per cent of their investible fund in unlisted securities. However, with the shrinking universe of unlisted debt securities, Sebi has proposed to relax this norm to allow Category II AIFs to invest in listed debt securities with a credit rating of 'A' or below.
By allowing investments in lower-credit paper, the regulatory framework will provide AIFs greater flexibility and diversification opportunities and also align with the high-risk appetite.
The Sebi Alternative Investment Policy Advisory Committee (AIPAC) has recommended that Sebi consider exploring a parameter based on privately-placed listed debt securities. However, Sebi has decided not to pursue this option as it does not align with the role of Category II AIFs.
According to Sebi paper, there are 192 Category II AIF schemes that have invested more than 50 per cent of their investment in unlisted debt securities.
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