INDIA Trends and Developments Contributed by: Tirthankar Datta, JSA Advocates & Solicitors
• offshore pooling vehicles, which would need to obtain a registration from SEBI as an FPI or a foreign venture capital investor (FVCI); or • domestic pooling vehicles, which would need to obtain registration as an AIF. Other foreign entities are permitted to partici - pate through external commercial borrowings (ECB), although due to all-in-cost ceilings and minimum average maturity and other regulatory requirements, these are largely utilised by inter - national banks or sponsors to fund their portfolio companies. FPI routes and developments The class of private credit investors mentioned above typically use NCDs. NCDs are rupee- denominated and do not have any interest rate ceilings. The proceeds of NCDs issued on a pri - vate placement basis can be used for any pur - pose. However, where the investor is an FPI, the proceeds of unlisted NCDs cannot be utilised for real estate business, capital markets or the purchase of land. There are no end use restric - tions for an NCD subscribed by FPIs or any oth - er investors that are listed on recognised stock exchanges in India, including AIFs. There are two routes under which FPIs can make investments under corporate debt securities: the general route and the voluntary retention route (VRR). Any investment under the general route has a concentration limit and is required to have at least two unrelated FPIs each subscribing to not less than half of each issue. There is also a minimum residual maturity requirement of at least one year for debt instruments held by FPIs under the general route. The VRR route does not have such concentra - tion limits, and ensures the investment is not locked into any specific security due to minimum
tenor or maturity requirements. Instead, the VRR route mandates that the funds invested by FPIs under this route would remain in India for the “retention period” – ie, three years. VRR limits are allocated through participation in a bidding process to purchase the investment limits that are released by RBI from time to time. Strong headwinds for private credit According to the EY Report on Private Credit, the deal value in the first half of FY 2024–25 aggregated to approximately USD6 billion (fac - toring in only deals in excess of USD10 million). In the previous financial year, the aggregate deal value for private credit deals was USD8.5 billion. There has been continued robust demand in fundraising activities in tying up global limited partners and large institutional investors. The ris - ing financialisation of domestic savings has led to high net worth individuals and family offices rerouting their investments from traditional alter - native asset classes like gold and real estate to debt securities. This has resulted in a large num - ber of these domestic private credit funds avail - ing of domestic capital instead of tapping global limited partners, which many private credit funds had traditionally been doing. Notwithstanding strong domestic funds being available, Indian funds have still attracted large international insti - tutional investors and sovereign funds. India continues to be an appealing emerging market destination, attracting a large amount of foreign direct investment, driven by consist - ent economic growth, a young workforce and a relatively stable political environment. The gov - ernment’s push for greater infrastructure build - ing, manufacturing for its “China plus one” and “Make in India” campaigns and a strong real estate upcycle have been further factors aiding the growth of the private credit market. India’s
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