Sebi proposes changes in Special Situation Funds to facilitate acquisition of stressed assets

livemint.com:

Securities and Exchange Board of India (Sebi) Tuesday proposed to amend the regulatory framework for a category of Alternative Investment Funds (AIF), called the Special Situation Funds (SSFs), to facilitate the acquisition of stressed loans and support the resolution of stressed assets in the Indian financial system. In a consultation paper, the market regulator suggested a definition of 'special situation assets', eligibility of investors in SSFs in terms of Insolvency law, restrictions concerning investment in connected entities, minimum holding period, subsequent transfer of loans, monitoring and supervision of such SSFs. To enable SSFs to acquire stressed loans, these funds need to be part of an RBI annexure pertaining to the transfer of loan exposure.

SSFs should not invest in or acquire a special situation asset if any of its investors is disqualified under the IBC rule about such special situation assets. Further, special situation funds should not invest in its 'related parties'. The Sebi consultation paper proposes that SSFs should transfer or sell stressed loans, only to the entities enlisted in the RBI annexure.

SSFs who have acquired stressed loans should be subject to a dedicated supervisory framework. It has been suggested that SSFs should submit information in respect of all investments in stressed loans to a trade reporting platform notified by RBI. This information includes details of units issued, details of investors subsequent changes in unit holdings, resolution strategies implemented, and recoveries effected.