The market regulator has given the go-ahead for alternative investment fund category I and category II (AIF - I and AIF - II) to borrow funds to meet shortfall in drawdown amount.
The cost of the borrowing will have to be met by the investor or investors who failed to provide the drawdown amount.
In a circular released on August 19, the Securities and Exchange Board of India (Sebi) also said that the AIF Regulations have been amended to extend the tenue of large value fund for accredited investors subject to conditions.
AIF - I and AIF - II are not allowed to borrow funds directly or indirectly or engage in any leverage to invest or otherwise, except for borrowing funds to meet temporary funding requirements and day-to-day operational requirements for not more than thirty days, on not more than four occasions in a year and not more than ten percent of the investable funds and subject to such conditions as may be specified by SEBI from time to time.
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To facilitate ease of doing business, Sebi has decided to allow these category funds to borrow for for the purpose of meeting temporary shortfall in amount called from investors for making investments in investee companies (‘drawdown amount’).
This will be subject to the following conditions:
1. If AIF intends to borrow funds for meeting shortfall in drawdown amount, the same shall be disclosed in the PPM of the scheme.
2. Such borrowing shall be done only in case of emergency and as a last recourse, when the investment opportunity is imminent to be closed and the drawdown amount from investor(s) has not been received by the AIF before the date of investment, in spite of best efforts by manager.
3. The amount borrowed shall not exceed twenty per cent of the investment proposed to be made in the investee company, or ten per cent of the investable funds of the scheme of AIF, or the commitment pending to be drawn down from investors other than the investor(s) who has failed to provide the drawdown amount, whichever is lower
4. The cost of such borrowing shall be charged only to investor(s) who failed to provide the drawdown amount for making investments.
5.The flexibility of borrowing to meet shortfall in drawdown amount shall not be used as a means to provide different drawdown timelines to investors.
6.The manager shall disclose the details with respect to amount borrowed, terms of borrowing and repayment to all the investors of the AIF/scheme, on a periodic basis as per the terms of agreement with the investors of the AIF.
The funds should also maintain a 30-day cooling off period between two bro
On extension of fund tenure
The circular said an LVF may extend its tenure up to five years subject to the approval of two-thirds of the unit holders by value of their investment in the LVF and the extension in tenure of any existing LVF scheme shall be subject to such conditions as may be specified by SEBI from time to time.
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The conditions are given as below:
1. Existing LVF schemes who have not disclosed definite period of extension in their tenure in the PPM or whose period of extension in tenure is beyond the permissible five years, shall align the period of extension in tenure with the requirement as given at para 6 above, within three months from the date of this circular, i.e., on or before November 18, 2024. Such LVF schemes shall update their revised period of extension in tenure in the quarterly report submitted on the SEBI Intermediary Portal (SI Portal) for the quarter ending December 31, 2024.
2.While realigning the period of extension in tenure, LVF schemes shall have the flexibility to revise their original tenure subject to the consent of all the investors of the scheme.
Such LVF schemes shall submit an undertaking to SEBI on or before November 18, 2024, stating that consent of all the investors of the scheme has been obtained for revising the original tenure.
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