INDIA Law and Practice Contributed by: Divyanshu Pandey, Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
3. Structuring and Documentation 3.1 Common Structures In India, private credit lenders predominantly lend by investing in NCDs. NCDs are debt secu - rities, and NCD holders are treated as financial creditors of the issuer. NCDs and other structures commonly used for private credit lending are as follows. Non-Convertible Debentures NCDs can be issued by a company to an AIF or FPI. The proceeds of NCDs issued on a private placement basis can be used for any purpose. However, where the investor is an FPI, the pro - ceeds of an unlisted NCD cannot be used for real estate business, capital markets or the pur - chase of land. There are 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 retention route (VRR Route). The key conditions for investment under the both the routes are set out below. Normal Route • FPIs are permitted to invest in NCDs with a minimum residual maturity of above one year. • Short-term investments in corporate bonds by an FPI cannot exceed 30% of the total investment of that FPI in corporate bonds. • Investment by any FPI, including related FPIs, shall not exceed 50% of any issue of NCDs.
2.4 Compliance and Reporting Requirements
In India, private credit providers must comply with various regulations prescribed by RBI and SEBI. For example, a private credit provider registered as an FPI or an AIF has to comply with regu - lations and guidelines, including the regulation of terms of registration, continuous disclosure requirements (including regarding ownership structure), investment conditions, the reporting of investments and inspection provisions. Please also see 2.1 Regulatory Approval . 2.5 Club Lending and Antitrust Not all lending arrangements are subject to anti - trust regulation but, while lending, one needs to be mindful of the antitrust laws in the context of debt enforcement and for merger and acquisi - tion transactions. In acquisitions, the Competition Act, 2002 restricts merging parties from undertaking actions that would effectively implement the transaction or integrate the businesses prior to receiving approval from the Competition Com - mission of India (CCI). Providing a guarantee on behalf of the target by the acquirer for securing loans by the target may be seen as gun jumping in certain circumstances. The CCI also plays a role in the context of enforcement. Any credit arrangement where the lender acquires control in a company pursuant to enforcement may require the consent of the CCI if such acquisition results in a breach of cer - tain thresholds prescribed pursuant to the Com - petition Act, 2002.
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