The Securities and Exchange Board of India (SEBI) has put out a proposal to amend regulations governing alternative investment funds (AIFs) to facilitate infrastructure financing.
According to the SEBI, the proposed changes aim to allow certain categories of AIFs to pledge shares of infrastructure companies they have invested in, enabling these companies to raise debt more easily.
AIFs are prohibited from borrowing directly or indirectly, including pledging securities of portfolio companies for loans availed by them. The SEBI’s recent clarification on this matter highlighted the need for flexibility, particularly in the context of infrastructure financing. The proposed amendment seeks to address this by permitting category I and II AIFs to create encumbrance on their equity holdings in infrastructure sector investee companies.
The move is expected to provide a significant boost to infrastructure development in the country, as it would facilitate access to much needed funds for capital-intensive projects, said a SEBI consulting paper.
However, the proposal comes with certain conditions. AIFs must inform their investors upfront and obtain their consent before pledging shares. Foreign companies are excluded from the scope of this amendment, and AIFs cannot pledge shares to obtain loans for other companies or provide guarantees.
