Special Situations Alternative Investment Funds 

PUBLISHED ON: 27-01-2022

SEBI has introduced a new sub-category of Category-I Alternative Investment Fund (“AIF”), a special situation fund, that invest in special situation assets and are permitted to act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016 (“IBC”)

Permissible Investments

  • Stressed loan available for acquisition, as per (i) Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“Master Directions”); or (ii) any other applicable policy of the RBI or Government of India or (iii) as part of a resolution plan approved under IBC.
  • Security receipts issued by an Asset Reconstruction Company (“ARC”);
  • Securities of investee company whose stressed loans are available for acquisition as per (i) Master Directions; or (ii) any other applicable policy of the RBI or Government of India or (iii) as part of a resolution plan approved under IBC.
  • Securities of investee company against whose borrowings, security receipts have been issued by an ARC.
  • Securities of investee company whose borrowings are subject to corporate insolvency resolution process and its credit rating has been downgraded to “D” or equivalent.
  • Securities of investee company who have disclosed all defaults relating to its debt under applicable laws, and such payment default is continuing for a period of at least 90 days after the occurrence of such default and its credit rating has been downgraded to “D” or equivalent.

Investment Conditions

  • The corpus for each scheme of a special situation fund and value of investment to be accepted from investors would be specified by SEBI.
  • Special situation funds are not permitted to accept investments from any other AIF other than a special situation fund.

Investment Restrictions

  • A special situation fund is not permitted to invest in: (i) its associates; (ii) units of any other AIF (other than units of a special situation fund); or (iii) units of special situation funds managed or sponsored by its manager, sponsor or associates of its manager or sponsor.
  • Stressed loan acquired by a special situation fund as per terms of the Master Directions would be subject to a lock-in period, as may be specified by SEBI.

Registration

An applicant may apply for registration as a special situation fund in accordance with the provisions of the AIF Regulations.

The aforementioned was notified vide SEBI (Alternative Investment Funds) (Amendment) Regulations, 2022 dated January 24, 2022 (available here).