Whilst the growth of India as an emerging market for foreign investment is nothing new, we are seeing some new trends in the way in which offshore Cayman vehicles are being used as an avenue for investing in that market – specifically, voluntarily registering master funds as regulated master funds under the Cayman Islands Monetary Authority ("CIMA"), for the reasons set out in more detail below.

The Indian Securities market regulator, the Securities and Exchange Board of India ("SEBI") released a circular late last year aligning the conditions for subscription of offshore derivative instruments ("ODIs") to those applicable to Foreign Portfolio Investors ("FPIs") under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 ("FPI Regulations").

The circular states that an FPI can issue ODIs only to those subscribers who meet certain eligibility criteria mentioned under regulation 4 of the FPI Regulations (which deals with eligibility criteria for an applicant to obtain registration as an FPI) in addition to meeting the eligibility criteria mentioned under regulation 22 of the FPI Regulations.

The eligibility criteria includes, amongst other things, that the relevant entity must be "regulated by an appropriate foreign regulatory authority".

Our experience is that SEBI accepts master fund entities that are registered with, and regulated by, CIMA as such being "regulated by an appropriate foreign regulatory authority".

Furthermore, it is important that the entity does not have an "opaque" structure, which is defined by SEBI to include protected cell companies, segregated portfolio companies or equivalent structural alternatives.

However, SEBI has now clarified that a Foreign Institutional Investor ("FII") requiring ring-fencing of its assets and liabilities from their funds or sub funds, under any law or by its regulator, shall not be regarded as having an opaque structure subject to the following conditions:

  1. The applicant is regulated in its home jurisdiction
  2. Each fund/sub fund of the applicant satisfies broad based criteria
  3. The applicant undertakes to provide information regarding its beneficial owners as and when SEBI seeks such information.

If your client is considering using a Cayman vehicle to ease their "passage to India", it still very much advisable to obtain local advice from Indian fund counsel, as well as Walkers Cayman advice.  Walkers has good relationships with a variety of Indian law firms and is placed well to deal with any questions or issues on this particular subject.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.