Sebi may let AIFs pledge shares in investee firms
Sebi) is considering a plan to allow alternative investment funds (AIFs) to pledge their shares in investee companies, a move that would allow these investment vehicles to engage in leverage, said people with knowledge of the matter.
«In some cases such as infrastructure, leverage is genuine. Sebi wants to allow pledging for legitimate purposes,» said one of the persons.
Generally, if a special purpose vehicle (SPV) operating an infrastructure project seeks a loan, the bank will insist on promoters pledging shares in the SPV as security. If an AIF is the promoter or controlling shareholder of an SPV operating an infrastructure project, this would be difficult unless the fund can pledge the shares.
Currently there are restrictions on this in place.
«It (the proposed rule) will be based on some checks and balances. For that, Sebi will engage with the industry,» said the person cited above.
Sebi didn't respond to queries.
The regulator will soon issue a consultation paper on the matter to seek public comments, said the people cited above. Sebi rules don't allow Category 1 and Category 2 funds to engage in leverage.
However, Category 3 funds can do so, with investor consent.
«It would be ideal if Sebi could amend the AIF regulations to permit these funds to pledge the securities of investee companies, provided, the PPM (private placement memorandum) permits the same or a super majority of investors approve the proposal to pledge the securities of investee companies and the pledge secures a loan offered to one or more portfolio companies,» said Vinod Joseph, partner, investment funds practice, at ELP, a leading law firm.
A few months ago, the regulator had frowned upon the practice of AIFs pledging securities of
