INDIA Law and Practice Contributed by: Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
no end use restrictions for an NCD that is listed on a recognised stock exchange in India. Generally, NCDs must have a minimum maturity or duration of one year at the time of investment by the FPI. There are two investment routes available to FPIs: the general route (Normal Route) and the voluntary reten - tion route (VRR Route). The key conditions for invest - ment under both routes are set out below. Normal Route • FPIs are permitted to invest in NCDs with a mini - mum residual maturity of above one year. • Investment by any FPI, including related FPIs, shall not exceed 50% of any issue of NCDs. VRR Route • The minimum investment of an FPI during the retention period should be 75% of the limit allot - ted to the FPI under the VRR Route (Committed Portfolio Size). The minimum retention period for an investment by an FPI under the VRR Route is three years, and such period commences from the date of allotment of limit. • FPIs are required to invest at least 75% of the Committed Portfolio Size within three months from the date of allotment of limit to the FPI. • FPIs may redeem their investments and reinvest the proceeds as long as the above conditions are met. It should also be noted that the minimum ten - ure requirement and the single/group investor-wise limits applicable to FPI investments in NCDs under the Normal Route do not apply. • The limits under the VRR Route can be obtained through an auction process for allotment of invest - ment amounts under the VRR Route. Any investment by an FPI in NCDs, if not made through the VRR Route, must comply with the single or group investor limits prescribed by the RBI. If the NCDs are listed on a stock exchange in India, they cannot be subject to a put or call option that can be exercised for a period of one year from the date of their issuance. In addition, one needs to keep in mind that NCDs with original maturity of less than one year
are subjected to the separate regulatory framework of the RBI. Other Instruments Other forms of structures for investment by private credit funds include compulsorily convertible deben - tures (CCDs) and optionally convertible debentures (OCDs). In India, foreign investors are allowed to invest in CCDs under the FEMA and the guidelines in relation thereto. Any investment by a foreign investor in any optionally convertible instrument is treated as an ECB. Private credit funds, if permitted in their fund docu - ments, can also invest in Securitised Debt Instru - ments, which are financial products where loans or receivables are pooled, converted into marketable securities, and sold to investors. Private credit providers in India provide delayed draw facilities by offering an elongated availability period. Revolving credit structures are not as common in pri - vate credit transactions. 3.2 Key Documentation The key documents involved in a private credit trans - action depend on the type of credit being provided. If the financing is by way of the issuance of NCDs, the key documents include the following: • debenture trust deed; • debenture trustee agreement; • disclosure documents (Form PAS-4 for unlisted NCDs and general information document and key information document for listed NCDs); • intercreditor agreement, if required; and • deed of hypothecation, indenture of mortgage/ memorandum of entry, and share/securities pledge agreement, in the event of a secured NCD and depending on the type of security. If the transaction is by way of a loan under the ECB regime, the key documents will be as follows: • loan agreement (which includes necessary cov - enants and stipulation from India’s ECB regime perspective);
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