Whether Foreign Portfolio Investors can hold delisted Non-Convertible Debentures?

SEBI has issued informal guidance to Puranik Buildcon Private Limited wherein it is stated that a company is permitted to de-list from the relevant stock exchanges, the existing listed NCDs that has been subscribed by a Foreign Portfolio Investor (FPI) prior to the date of amendments in SEBI Foreign Portfolio Investors Regulations, 2014 (SEBI FPI Regulations) and Regulation 5(4) read with Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (FEMA Regulations) issued by Reserve Bank of India, coming into effect. However, if the company is involved in real estate business, capital market and purchase of land, FPI cannot be permitted to hold the NCDs after the same is delisted.

Facts of the case:

         The Company, Puranik Buildcon Private Limited is engaged in the real estate business.

       On 26^th April, 2016, company had issued and allotted secured, redeemable, non-convertible   debentures to a registered FPI and is solely held by them. The said NCDs are listed on BSE.

      At the time of issuance of the NCDs, as per SEBI Foreign Portfolio Investors Regulations, 2014 and Regulation 5(4) read with Schedule 5 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, a foreign portfolio investor was permitted to invest in listed debentures. 

    After allotment, relevant regulations were amended and FPIs were permitted to invest in unlisted NCDs issued by Indian Companies subject to certain conditions such as restrictions on the investment in real estate business, capital market and purchase of land

Pursuant to relevant amendments the Company has sought following informal guidance from SEBI

Whether NCDs can be delisted from the relevant stock exchanges which were subscribed by the FPI prior to the amendments coming into effect?

          Whether FPI can hold such de-listed NCDs after delisting?

SEBI stated that pursuant to relevant amendments and RBI Circular dated 17^th November, 2016 and SEBI circular dated 28^th February, 2017, FPIs are permitted to invest in unlisted corporate debt securities in the form of NCDs/bonds issued by public or private Indian Companies subject to conditions mentioned below viz., .

         End use-restrictions on the investment in real estate business,

        Capital market and

            Purchase of land

SEBI’s reply to above referred queries:

 1:

In this case FPIs are allowed to invest in unlisted NCDs subject to end use restriction on investment in real estate business, capital market or purchase of land.

2:

As the Company is engaged in real estate business, SEBI assumed that the proceeds of the said issue of NCDs might have been utilized for the real estate business. Hence, stated that FPIs cannot be permitted to hold the NCDs after the same is delisted.