CIRCULAR
SEBI/HO/AFD/AFD-POD-1/P/CIR/2024/112 August 19, 2024
To,
All Alternative Investment Funds (AIFs)
Sir/Madam,
Sub: Guidelines for borrowing by Category I and Category II AIFs and
maximum permissible limit for extension of tenure by LVFs
1. Securities and Exchange Board of India (Alternative Investment Funds)
Regulations, 2012 (“AIF Regulations”) have been amended and notified on
August 06, 2024, with respect to (i) norms for borrowing by Category I and
Category II AIFs, and (ii) maximum permissible limit for extension of tenure
by Large Value Fund for Accredited Investors (LVFs). Copy of the
aforesaid notification is available at link.
A. Guidelines for borrowing by Category I and Category II AIFs
2. In terms of Regulation 16(1)(c) and Regulation 17(c) of AIF Regulations,
Category I and Category II AIFs shall not borrow funds directly or indirectly
or engage in any leverage for the purpose of making investments or
otherwise, except for borrowing funds to meet temporary funding
requirements and day-to-day operational requirements for not more than
thirty days, on not more than four occasions in a year and not more than
ten percent of the investable funds and subject to such conditions as may
be specified by SEBI from time to time.
3. In this regard, in order to facilitate ease of doing business and provide
operational flexibility, it has been decided to allow Category I and
Category II AIFs to borrow for the purpose of meeting temporary shortfall
in amount called from investors for making investments in investee
companies (‘drawdown amount’).
4. Category I and Category II AIFs may borrow for the purpose of meeting
shortfall in drawdown amount, subject to the following additional
conditions:
4.1. If AIF intends to borrow funds for meeting shortfall in drawdown
amount, the same shall be disclosed in the PPM of the scheme.
4.2. Such borrowing shall be done only in case of emergency and as a
last recourse, when the investment opportunity is imminent to be
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closed and the drawdown amount from investor(s) has not been
received by the AIF before the date of investment, in spite of best
efforts by manager to obtain the drawdown amount from the
delaying investor(s).
4.3. The amount borrowed shall not exceed twenty per cent of the
investment proposed to be made in the investee company, or ten
per cent of the investable funds of the scheme of AIF, or the
commitment pending to be drawn down from investors other than
the investor(s) who has failed to provide the drawdown amount,
whichever is lower.
4.4. The cost of such borrowing shall be charged only to investor(s) who
failed to provide the drawdown amount for making investments.
4.5. The flexibility of borrowing to meet shortfall in drawdown amount
shall not be used as a means to provide different drawdown
timelines to investors.
4.6. The manager shall disclose the details with respect to amount
borrowed, terms of borrowing and repayment to all the investors of
the AIF/scheme, on a periodic basis as per the terms of agreement
with the investors of the AIF.
5. Further, all Category I and Category II AIFs shall maintain thirty days
cooling off period between two periods of borrowing as permissible under
AIF Regulations. The cooling off period of thirty days shall be calculated
from the date of repayment of previous borrowing.
B. Maximum permissible limit for extension of tenure by LVFs
6. In terms of proviso to Regulation 13(5) of AIF Regulations, a LVF may
extend its tenure up to five years subject to the approval of two-thirds of
the unit holders by value of their investment in the LVF and the extension
in tenure of any existing LVF scheme shall be subject to such conditions
as may be specified by SEBI from time to time.
7. In this regard, the following is specified -
7.1. Existing LVF schemes who have not disclosed definite period of
extension in their tenure in the PPM or whose period of extension in
tenure is beyond the permissible five years, shall align the period of
extension in tenure with the requirement as given at para 6 above,
within three months from the date of this circular, i.e., on or before
November 18, 2024.
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Such LVF schemes shall update their revised period of extension in
tenure in the quarterly report submitted on the SEBI Intermediary
Portal (SI Portal) for the quarter ending December 31, 2024.
7.2. While realigning the period of extension in tenure, LVF schemes
shall have the flexibility to revise their original tenure subject to the
consent of all the investors of the scheme.
Such LVF schemes shall submit an undertaking to SEBI on or
before November 18, 2024, stating that consent of all the investors
of the scheme has been obtained for revising the original tenure.
8. Accordingly, the conditions for extension of tenure for LVFs as given in
para 12.14 of SEBI Master Circular No. SEBI/HO/AFD-1/AFD-1-
PoD/P/CIR/2024/39 dated May 07, 2024 for AIFs (‘Master Circular for
AIFs’) shall not be applicable with effect from the date of this circular.
9. The trustee/sponsor of AIF, as the case may be, shall ensure that the
‘Compliance Test Report’ prepared by the manager in terms of Chapter 15
of Master Circular for AIFs, includes compliance with the provisions of this
circular.
10. This circular shall come into force with immediate effect.
11. This circular is issued with the approval of the competent authority.
12. This circular is issued in exercise of powers conferred under Section 11(1)
of the Securities and Exchange Board of India Act, 1992, read with
Regulations 13(5), 16(1)(c), 17(c) and 36 of AIF Regulations, to protect the
interests of investors in securities and to promote the development of, and
to regulate the securities market.
13. The circular is available on SEBI website at www.sebi.gov.in under the
categories "Legal framework - Circulars" and "Info for - Alternative
Investment Funds”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Tel no.: +91-22-26449222
ssbhati@sebi.gov.in
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