SEBI Allows AIFs to Create Encumbrances on Their Equity Holdings in Investee Companies Engaged in Infra Sector

Circular No. SEBI/HO/AFD/PoD1/CIR/2024/027; Dated: 26.04.2024

SEBI has allowed Category I and Category II AIFs to create encumbrances on their holdings of equity in investee companies, engaged in the business of development, operation or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure issued by the Central Government. This move aims to provide ease of doing business and flexibility to Category I and II AIFs to create encumbrances to facilitate debt raising by such investee companies.

Further, any encumbrances already created by a scheme of Category I or Category II AIF prior to April 25, 2024, on the securities of the investee company for the purpose of borrowing of such investee company, may continue if such encumbrances were created after making an explicit disclosure in the Private Placement Memorandum (PPM) of the scheme.

Also, Category I or Category II AIFs are required to ensure that the borrowings made by the investee company against the equity investments encumbered by the AIFs are utilised only for the purpose of development, operation or management of the investee company and are not utilised for any other purpose, including to invest in another company.

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