What changed
FPI investments in defaulted NCDs/bonds are now exempt from the minimum residual maturity requirement, short-term investment limit, and investor limit that normally apply to corporate bond investments. Previously, only security receipts, ARC debt instruments, and CIRP resolution plan instruments enjoyed such exemptions.
What it means for you
Banks and lenders can now expect increased FPI participation in defaulted bonds, potentially improving liquidity and pricing in the distressed debt market. This may help in faster resolution of stressed assets and provide an additional exit route for lenders holding defaulted paper.
What you must do
- Update internal FPI compliance checklists to reflect the new exemptions for defaulted bonds.
- Advise FPI clients on the relaxed rules for investing in defaulted NCDs/bonds.
- Review existing FPI investment agreements to align with the updated directions.
- Monitor FPI flows into defaulted bonds to assess impact on your bond portfolio.
Who it affects
Authorised Dealer Category-I banks, Foreign Portfolio Investors, Corporate bond issuers in default, Lenders holding defaulted bonds
What specific requirements are waived for FPI investments in defaulted bonds?
The minimum residual maturity requirement, short-term investment limit, and investor limit under the MTF are exempted for FPIs investing in defaulted NCDs/bonds.
Does this circular apply to all defaulted bonds?
Yes, it applies to NCDs/bonds that are under default, either fully or partly, in repayment of principal on maturity or principal instalment in the case of amortising bonds.
When did this circular become effective?
The circular was issued on February 26, 2021, and the relaxation was announced in the Statement on Developmental and Regulatory Policies dated February 5, 2021.