REs Shall Not Invest in AIFs With Direct or Indirect Downstream Investments in Its Debtor Companies | RBI

Circular No. RBI/2023-24/90 DOR.STR.REC.58/21.04.048/2023-24, Dated 19.12.2023

The Regulated entities (REs) make investments in units of AIFs as part of their regular investment operations. However, certain transactions of REs involving AIFs that raise regulatory concerns have come to RBI’s notice. In order to address concerns relating to possible evergreening through this route, RBI has advised REs not to make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE.

Further, if an AIF scheme, in which RE is already an investor, makes a downstream investment in any such debtor company, then the RE shall liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF.

Also, if REs have already invested into such schemes having downstream investment in their debtor companies as on date, the 30-day period for liquidation shall be counted from date of issuance of this circular. REs shall forthwith arrange to advise the AIFs suitably in the matter.

In addition, investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from RE’s capital funds. The instructions shall become effective immediately.

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