Special Situation Funds for investment in stressed assets introduced vide SEBI (Alternative Investment Funds) (Amendment) Regulations, 2022

On January 24, 2022, the Securities Exchange Board of India notifies Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2022 to further amend the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.

 

Key Amendment:

  • The Amendment inserts Chapter III-B on Special Situation Funds in the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012:

Applicability: The provisions of this Chapter shall apply to special situation funds and schemes launched by such special situation funds.

Investment in special situation funds:

    1. Each scheme of a special situation fund shall have a corpus as may be specified by the Board.
    2. The special situation fund shall accept from an investor, an investment of such value as may be specified by the Board.
    3. The special situation fund shall not accept investments from any other Alternative Investment Fund other than a special situation fund.

Investment by special situation funds:

Special situation funds shall invest only in special situation assets and may act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016. Provided that the special situation fund shall not invest in,

i. its associates; or
ii. the units of any other Alternative Investment Fund other than the units of a special situation fund; or

iii. units of special situation funds managed or sponsored by its manager, sponsor or associates of its manager or sponsor.

Note:

“Special situation asset” includes,

(a) stressed loan available for acquisition in terms of Clause 58 of Master Direction Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 as amended from time to time or as part of a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 or in terms of any other policy of the Reserve Bank of India or Government of India issued in this regard from time to time;
(b) security receipts issued by an Asset Reconstruction Company registered with the Reserve Bank of India;

(c) securities of investee companies,

    • whose stressed loans are available for acquisition in terms of Clause 58 of the Master Direction Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 as amended from time to time or as part of a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 or in terms of any other policy of the Reserve Bank of India or Government of India issued in this regard from time to time;
    • against whose borrowings, security receipts have been issued by an Asset Reconstruction Company registered with the Reserve Bank of India;
    • whose borrowings are subject to corporate insolvency resolution process under Chapter II of the Insolvency and Bankruptcy Code, 2016;
    • who have disclosed all the defaults relating to the payment of interest/ repayment of principal amount on loans from banks / financial institutions/ Systemically Important Non-Deposit taking Non-Banking Financial Companies/ Deposit taking Non-Banking Financial Companies and /or listed or unlisted debt securities in terms of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and such payment default is continuing for a period of at least ninety calendar days after the occurrence of such default: Provided that in case of sub-clauses (iii) and (iv), the credit rating of the financial instruments or credit instruments or borrowings of the company has been downgraded to “D” or equivalent.

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