Sebi eases debt allocation mechanism for FIIs

Relaxing debt allocation norms for foreign institutional investors (FII), Sebi has allowed them to re-invest half of their investments in debt holdings to the next calendar year, starting from January 2014.

Once the relaxation is in place, FIIs and sub-accounts can re-invest 50 per cent of their debt holdings from the previous calendar year to the succeeding calendar year.

Sub-accounts are the entities that include foreign companies, foreign individuals and institutions, funds or portfolios established outside India, on whose behalf FIIs propose to make investments in India.

"With a view to provide operational flexibility, beginning January 1, 2014, it has been decided that FIIs/sub-accounts can reinvest during each calendar year to the extent of 50 per cent of their debt holding at the end of previous calendar year," Sebi said in a circular.

For investing in the bond market, FIIs have to acquire limits, which are auctioned by the Securities and Exchange Board of India (Sebi) every month.

The regulator has also reduced the utilisation period for government securities and corporate debt limits, allocated through bidding process, to 30 days and 60

days, respectively.

Earlier, FIIs were given 45 days to use their government securities limits and 90 days to use their corporate debt limits.

This would be applicable for both old-and long-term infrastructure limits.

Further, Sebi has relaxed the investment limits for FIIs regarding corporate debt in the long-term infrastructure category.

"It has been decided that FII may avail limits in the corporate debt long-term infra category without obtaining Sebi approval till the overall FII investments reaches 90 per cent of the limit...," the circular said.

Once the limit is touched, auction mechanism would be initiated for allocation of remaining limits, it added.

Sebi said it would put in place a mechanism to monitor the utilisation of the limit.

Overseas investors had poured in Rs 7,852 crore (about $1.5 billion) in the Indian debt market in October, the highest in eight months.

This was the highest net investment by FIIs in debt securities since February, when they had infused Rs 10,016 crore (Rs 100.16 billion).