Sebi allows FIIs to invest in govt debt without any auction

To boost foreign fund inflows into the capital markets here, regulator Sebi today allowed overseas entities to invest in government securities without any auction mechanism.

Relaxing the debt allocation norms for foreign institutional investors (FIIs), Sebi said such entities can invest in government securities without purchasing debt limits till the overall investment reaches 90 percent. Securities and Exchange Board of India said in a circular that once the limit is reached, the auction mechanism would be initiated for allocation of the remaining limits, as currently in place for corporate debt.

FIIs/QFIs have to purchase the debt limits through the auction mechanism conducted by Sebi. The circular, which comes into force with immediate effect, said: "It has been decided that FIIs/QFIs can now invest in government debt without purchasing debt limits till the overall investment reaches 90 percent after which the auction mechanism shall be initiated for allocation of the remaining limits, as currently in place for FII investments in corporate debt."

These measures come at a time when concerns are being raised about outflows of foreign capital and weakening of the rupee against the dollar and other foreign currencies. The new norms are expected to make it much easier for the foreign investors to enter the country and make investment decisions.

Sebi said: "...the facility of re-investment as well as the restrictions on re-investment shall no longer apply in respect of limits held/investments made by FIIs in the government debt category, till the limits are available on tap." It added that those FIIs which had obtained government debt limits in the auctions held on August 20, 2013, would have to use their debt quotas by the 17th of each month, instead of the 19th. The rule change would make the sale of these debt limits more efficient.

The regulator auctions these quotas each month on the 20th, but determines the amount of unutilised quotas available for sale as of the end of the day on the 18th.