FII investments in corporate debt capped at $0.5bn

The Securities and Exchange Board of India (Sebi) has clarified that foreign institutional investors (FII) investment in corporate debt would be capped at $0.5 billion within the overall ceiling of $2.25 billion in the debt market.

For those investing under the 70:30 route, investments in government securities and treasury bills have been capped at $200 million, which means that equity funds will not be able to invest more than this amount in such debt instruments.

Sebi in a circular on Friday said that "investments in government debt only shall be reckoned within the sub-ceiling of $1.55 billion".

According to the circular, FII investments in corporate debt will now be, therefore, reckoned within the sub-ceiling of $0.5 billion.

To conform to this, there will be no further investment or rollover of existing position in corporate debt by both 100 per cent debt and those investing through the 70:30 route till the holdings fall within the stipulated cap of $0.5 billion. Subsequently, this limit will be allocated between the two categories.

The circular also clarifies that any further investment in government debt within the sub-ceiling of $1.55 billion may be undertaken by 100 per cent debt FIIs and sub-accounts only up to the extent of the unutilised portion of their notified limits.

The redeemed portion of the corporate debt within the limit can be utilised for investment in government debt only.

However, FIIs, whose holdings, as on date, are in excess of the limits allocated to them, should not undertake any fresh investment or rollover till their total holdings fall within the limits communicated to them earlier.

All these clarifications follow from the circular issued in December last year where it was said that a cumulative sub-ceiling of $0.5 billion outstanding has been fixed for FII investments in corporate debt.

This cap would be over and above the sub-ceiling of $1.75 billion for government debt under the overall external commercial borrowing ceiling.

The finance ministry had also issued a clarification later on that the sub-ceilings for government securities and for corporate debt would be separate and would not be fungible. The sub-ceilings of $1.75 billion and $0.5 billion will be applicable for all categories of FIIs.