The government on 12 Sept 2011 eased foreign institutional investment rules in the long-term infrastructure corporate bonds to attract overseas funds to the key infrastructure sector by reducing the residual maturity and lock-in periods for investments in listed and unlisted bonds.
In the 2011-12 Budget, the government had raised the investment limit for FIIs (foreign institutional investors) in long-term infrastructure bonds from $5 billion to $25 billion. Investments under this scheme had a minimum residual maturity of five years and were subject to a minimum lock-in period of three years.
The government has now relaxed the lock-in period norms where FIIs can now invest in long-term infra bonds with the residual maturity period reduced to one year. Earlier, Sebi via its circular dated August 09, 2011 had allowed Qualified Foreign Investors (QFIs) to subscribe to mutual fund debt schemes in infrastructure sector, subject to a ceiling of $3 billion within the existing ceiling of $25 billion.
As per the new norms, FIIs were allowed to invest up to $5 billion in long-term infrastructure bonds having an initial maturity of five years and a residual maturity of one year compared to five years residual maturity before. FIIs were permitted to invest a maximum of $17 billion in long-term infrastructure bonds of an equivalent initial maturity but with a residual maturity period of three years compared to five years before. While the lock-in period for the $5 billion investment window was cut down from three years to one year, it will remain three years for the $17 billion investment.
The finance ministry had created a USD 3 billion window 9 August 2011 from the overall USD 25 billion limit. Qualified foreign investors (QFIs) were permitted to subscribe to debt schemes pertaining to infrastructure sector. $3 billion will continue to remain open to qualified foreign investors (QFIs) for investing in mutual fund debt schemes that invest in infrastructure sector.
The scheme had been conceived to open new channels of funding for the infrastructure sector while deepening the corporate bond market.
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