INDIA Law and Practice Contributed by: Divyanshu Pandey, Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
1.8 Deal Sizes, Fund Sizes and Fundraising
The amendments to effect these changes have been approved by SEBI in its board meeting.
The size of private credit transactions depends on the requirements of the borrowers and the ability of the lenders to provide such limits, which usually fall in the “mid-cap” range. An indicative range for Indian private credit funds is USD10 million to USD50 million, but there are examples of such funds lending up to USD150 million. In contrast, certain deals have been in the range of USD150 million to USD300 million, or even higher. High net worth individuals and family offices continue to fund Indian private credit players, as the fixed income stream is attractive for them as an investment option. 1.9 Impending Regulation and Reform FPIs and AIFs are required to register with SEBI and are governed by the regulations issued by SEBI. Furthermore, any investment by FPIs in NCDs is regulated by the Foreign Exchange Management Act, 1999 of India (FEMA) and other rules and regulations framed by RBI and SEBI from time to time. Currently, there are no proposed reforms or leg - islation that will affect lending by private credit funds in India at a macro level. In a board meeting, SEBI has approved the issu - ance of a model format for the debenture trust deed (the document pursuant to which NCDs are issued) for the issuance of listed NCDs (Model DTD). While parties will be permitted to modify the Model DTD, any deviations will need to be disclosed to the stock exchange. This change has been proposed to standardise the documents relating to debt securities and to ensure increased participation by investors.
2. Regulatory Environment 2.1 Licensing and Regulatory Approval Domestic private credit funds are primarily struc - tured as AIFs and are regulated by SEBI. Foreign investors that want to participate in the private credit market in India can do so either by registering as an FPI with SEBI, or by lending through their offshore entity under the external commercial borrowings (ECBs) route. 2.2 Regulators of Private Credit Funds Please see 1.9 Impending Regulation and Reform and 2.1 Regulatory Approval . 2.3 Restrictions on Foreign Investments Any investment by a foreign investor in units of an AIF is regulated by the FEMA and the rules and regulations framed thereunder. A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorpo - rated outside India (other than an entity incor - porated in Pakistan or Bangladesh) is permitted to invest in units of an AIF. Any sale, transfer or redemption of units acquired or purchased by a non-resident in AIF is regulated by SEBI and/ or RBI. If either the sponsor, manager or investment manager of an AIF is not Indian “owned and controlled”, then any downstream investment by such AIF is regarded as foreign investment and is required to comply with the relevant provisions of the FEMA. This is not applicable to investment by AIFs in NCDs. It should also be noted that AIFs cannot lend in form of loans.
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