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In order to address the growing concerns of stressed assets, SEBI has introduced Special Situation Funds (SSF), a subcategory under Category I AIF, which shall invest in ‘special situation assets'.
In order to address the growing concerns of stressed assets,
SEBI has introduced Special Situation Funds (SSF),
a subcategory under Category I AIF, which shall invest in
'special situation assets'. Accordingly, amendments were
carried out to SEBI (Alternative Investment Funds) Regulations,
2012 (AIF Regulations), effective from on January
24, 2022. Further to the introduction of certain regulatory
provisions in the AIF Regulations, SEBI has now issued certain
other regulatory and investment norms applicable to SSFs. The
consolidated changes are analyzed below.
Amendment
Analysis / Explanation
Introduction of SSFs as a sub-category
under Category I AIFs
SSFs have been approved as a sub-category under
Category I AIF, which will invest only in 'special situation
assets' and may act as a resolution applicant under the
Insolvency and Bankruptcy Code, 2016 (IBC). This
will allow SSFs to participate in the resolution process
contemplated under IBC.
Permitted investments by SSFs | Meaning of
'special situation assets'
In order to drive focus of SSFs towards stressed assets, it has
been specified that SSFs will invest only in special situation
assets. Such assets include:
Stressed loans available for acquisition in terms of Reserve
Bank of India (Transfer of Loan Exposures) Directions, 2021 or as
part of a resolution plan approved under IBC;
Security receipts issued by Asset Reconstruction Companies
(ARC);
Securities of investee companies (i) whose stressed loans
available for acquisition in terms of Reserve Bank of India
(Transfer of Loan Exposures) Directions, 2021 or as part of a
resolution plan approved under IBC; (ii) against whose borrowings,
security receipts have been issued by an ARC; (iii) whose
borrowings are subject to corporate insolvency resolution process
under Chapter II of IBC; (iv) who have disclosed all the defaults
relating to the payment of interest/ repayment of principal amount
on loans from banks / financial institutions;
Any other asset/security as may be prescribed by SEBI from time
to time.
Other features of SSF regulatory
framework
Minimum Corpus: Each scheme of SSF shall have
a corpus of at least INR 100,00,00,000 (Indian Rupees One Hundred
Crores).
Diversification norms: Diversification norms
applicable to Category-I AIF will not apply to SSFs, unless
specified otherwise.
Minimum Investment:
Category of investor
Amount
Any investor
Not less than INR 10,00,00,000 (Indian Rupees Ten
Crores)
Accredited Investor
Not less than INR 5,00,00,000 (Indian Rupees Five
Crores)
Employees or directors of the SSF or employees or
directors of the manager of the SSF
Minimum value of investment shall be INR 25,00,000
(Indian Rupees Twenty Five Lakhs)
Restriction on investment: SSFs have been
restricted from investing in (i) its associates, or (ii) units of
any other AIF other than the units of an SSF, or (iii) units of
SSFs managed or sponsored by its manager, sponsor or associates of
its manager or sponsor;
Eligibility norms under IBC: SSF intending to
act as a resolution applicant under the IBC shall ensure compliance
with the eligibility requirement provided thereunder.
Investment by an SSF in the stressed loan
acquired under Reserve Bank of India (Transfer of Loan Exposures)
Directions, 2021 (RBI Master Direction)
SSF may acquire stressed loan in terms of clause 58 of RBI
Master Direction upon inclusion of SSF in the respective Annex of
the RBI Master Direction.
Stressed loan acquired by SSF in terms of clause 58 of the RBI
Master Direction shall be subject to a minimum lock-in period of
six months. The lock in period shall not be applicable in case of
recovery of the stressed loan from the borrower.
SSF acquiring stressed loans in terms of the RBI Master
Direction shall comply with the same initial and continuous due
diligence requirements for its investors, as those mandated by RBI
for investors in Asset Reconstruction Companies.
The aforesaid changes have been made vide the SEBI (Alternative
Investment Funds) (Amendment) Regulations, 2022 dated January 24,
2022 (available
here) read with SEBI Circular dated January 27, 2022 (
available here).
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.
