AIFs Pledging Equity Holdings in Infra Sector Investee Companies

On April 25, 2024, the Securities and Exchange Board of India (SEBI) notified the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024, thereby enabling Category I and II AIFs to create encumbrances on their holding of equity in infrastructure sector investee companies. The same is in alignment with the decisions taken at the 204th meeting of the SEBI Board last month.

Through this amendment, changes have been made to Regulations 16(1)(c) and 17(c) of the 2012 Regulations. The provisos added to these regulations specify that Category I and II AIFs may create encumbrances on the equity of their infrastructure sector investee company. Such an investee company has to be in the business of development, operation, or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure issued by the Central Government. However, the creation of encumbrances will be allowed only for the purpose of borrowing by such investee company and subject to such conditions as may be specified by the Board from time to time. Through a circular, the Board unveiled the framework in this respect a day after the Amendment Regulations were notified.

The AIF Amendment Regulations also incorporate provisions concerning the Dissolution Period. Additionally, SEBI came out with a few other important notifications last week, amending the SEBI (Research Analysts) Regulations, 2014, the SEBI (Investment Advisers) Regulations, 2013, and the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.