Sebi for revised norms on Special Situation Funds

New Delhi: Sebi has proposed changes in the regulatory framework for Special Situation Funds to facilitate the acquisition of stressed loans. Special Situation Funds (SSFs) are sub-category Alternative Investment Funds (AIFs). In a consultation paper, Sebi suggested a definition of ‘special situation assets’, eligibility of investors in SSFs in terms of Insolvency law, restrictions concerning investment in connected entities, minimum holding period, subsequent transfer of loans, monitoring and supervision of such SSFs.

The proposals have been floated after consultations with the Reserve Bank of India (RBI), which is the principal regulator for the sale and purchase of stressed loans in India. The Securities and Exchange Board of India (Sebi) has sought comments from the public on the consultation paper till December 27. To enable SSFs to acquire stressed loans, these funds need to be part of a RBI annexure pertaining to the transfer of loan exposure.

In the consultation paper, the regulator has proposed amending AIF norms to make changes to the regulatory framework for SSFs. Under this, Sebi proposed a definition for a ‘special situation asset’ that includes securities of investee companies, whose stressed loans are acquired in terms of RBI Master Directions.

Further, SSFs having prior investment in securities of stressed companies should not be disqualified or barred from acquiring stressed loans of the said companies. In addition, SSFs should not invest in or acquire a special situation asset if any of its investors is disqualified under the IBC rule about such special situation assets.