Concerned over low inflow of FII funds
into long-term corporate bonds, the government on Monday announced relaxation in the norms that would allow foreign investors to invest in infrastructure bonds
and trade such instruments among themselves.
Under the revised norms, which would be notified by the market regulator Securities and Exchange Board of India (Sebi), FIIs would be allowed to invest up to $5 billion out of the total limit of $25 billion in long-term infrastructure bonds, with an initial maturity of five years and lock-in period of one year.
The relaxation in guidelines follows low inflows of FII funds in corporate bonds. While the government on March 31, 2011, had raised the investment limit in such bonds from $5 billion to $25 billion (Rs 1.12 lakh crore), only $109 million (Rs 500 crore) has been received so far.
"...consultations were held with the stakeholders on the issue and it was concluded that the three-year lock in period and doubts regarding the residual maturity of five years were discouraging FIIs from investing in this scheme", a release said.
The government, it said, has modified the scheme in consultation with the Reserve Bank and Sebi to "make it more attractive to FIIs".
Sebi last month had allowed Qualified Foreign Investors (QFIs) to invest up to $3 billion, out of the limit of $25 billion, in Mutual Fund Debt Schemes which invest in the infrastructure sector.
Out of the remaining $ 22 billion, $5 billion could be invested by FIIs in long-term infrastructure bonds "with an initial maturity of five-years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs".
These investments, it said, will be subject to lock-in period of one year. The FIIs would also be allowed to trade such securities among themselves within that period and sell to domestic investors after expiry of one year.
It further said that the remaining $17 billion limit would be available to FIIs and can be invested in long-term infrastructure bonds with an initial maturity of five years or more and residual maturity of three years at the time of first purchase by FII.
The lock-in period for such investments would be three years. However, FIIs would be allowed to trade such instruments among themselves during the three-year period and after that they would be allowed to sell them to domestic investors.
The government proposes to double investment in infrastructure sector to USD 1 trillion during the 12th Plan (2012-17).