SEBI proposes new framework for AIFs to strengthen corporate governance rules
The Hindu
SEBI proposes new framework for AIFs to strengthen corporate governance rules in which Category I and Category II AIFs should not borrow funds directly or indirectly or engage in leverage for the purpose of making investments.
To strengthen corporate governance mechanism, capital markets regulator, the Securities and Exchange Board of India (SEBI) has proposed to amend the current rules governing Alternative Investment Funds (AIFs).
Under the proposal, Category I and Category II AIFs should not borrow funds directly or indirectly or engage in leverage for the purpose of making investments, SEBI said in a consultation paper on May 18.
These AIFs can borrow for the purpose of meeting shortfall in drawdown while making an investment in an investee company, subject to certain conditions.
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The conditions included that such borrowing by these AIFs should be done only in case of emergency and as a last recourse, the amount borrowed should not exceed 10% of the investment proposed to be made in the investee company and the cost of such borrowing should be charged only to such investor who delayed or defaulted on drawdown payment.
Category I and Category II AIFs should maintain 30 days cooling off period between two periods of permissible leverage.
"The regulatory intent behind permitting borrowing for Category I and II AIFs is that the funds borrowed shall be utilized for meeting operational requirements of the AIF, and not for the purpose of making investment," SEBI noted.
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