RBI/2011-12/423
A.P. (DIR Series) Circular No. 89
March 01, 2012
To
All Category – I Authorised Dealer banks
Madam / Sir,
Foreign Institutional Investor (FII) investment
in ‘to be listed’ debt securities
Attention of Authorised Dealer Category - I (AD Category-I) banks is invited
to Regulation 5(4) and Schedule 5 of
Notification No. FEMA 20/2000-RB dated May 3, 2000, viz.,
Foreign Exchange Management (Transfer or issue of Security by a Person Resident
outside India) Regulations, 2000, as amended from time to time, in terms of
which the Securities and Exchange Board of India (SEBI) registered FIIs are
allowed to invest only in listed non-convertible debentures (NCDs) / bonds
issued by an Indian company.
2. SEBI has, vide their circular CIR/IMD/FIIC/18/2010 dated November 26,
2010, issued instructions on the revised allocation of investment limits to
FIIs. In terms of paragraph 8 of the circular, SEBI has allowed FIIs to invest
in ‘to be listed’ debt securities. Accordingly, it has been decided that SEBI
registered FIIs/sub-accounts of FIIs can now invest in primary issues of
Non-Convertible Debentures (NCDs)/ bonds only if listing of such bonds / NCDs is
committed to be done within 15 days of such investment. In case the NCDs/bonds
issued to the SEBI registered FIIs / sub-accounts of FIIs are not listed within
15 days of issuance to the SEBI registered FIIs / sub-accounts of FIIs, for any
reason, then the FII/sub-account of FII shall immediately dispose of these
bonds/NCDs either by way of sale to a third party or to the issuer and the terms
of offer to FIIs / sub-accounts should contain a clause that the issuer of such
debt securities shall immediately redeem / buyback the said securities from the
FIIs/sub-accounts of FIIs in such an eventuality.
3.Necessary amendments to the Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident Outside India) Regulations, 2000 notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000 will be issued separately.
4. AD Category – I banks may bring the contents of this circular to the
notice of their constituents and customers concerned.
5. The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Meena Hemchandra)
Chief General Manager-in-Charge