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The Finance Ministry has liberalised FII (foreign institutional investors) investment in long-term infrastructure sector bonds issued by corporates.
FIIs will now be able to invest up to $5 billion in bonds with a lock-in period and residual maturity of one year. However, to avoid floating of short-term paper, the bonds would need to have a minimum initial maturity of five years.
Once issued, FIIs can sell and buy the bonds amongst themselves, and only at the end of one year can they sell to domestic investors.
This is as opposed to the current arrangement, where investments in long-term infrastructure bonds (both listed as well as unlisted) are subject to a minimum residual maturity of five years and a lock-in of three years.
The decision to reduce the lock-in and residual maturity to one year has been taken in view of the poor inflows under the scheme.
As on August 31, the scheme attracted a paltry $109 million, as against an overall investment ceiling of $25 billion for such bonds announced in the 2011-12 Union Budget.
Out of the $ 25-billion limit, the Government has already set aside $3 billion for subscription by qualified foreign investors or QFIs in mutual fund debt schemes investing in the infrastructure sector.
Another $5 billion will now be permitted for FII investments in infrastructure bonds with residual maturity and lock-in of one year.
The remaining $17 billion limit available to FIIs can be invested in infrastructure bonds with an initial maturity of five years or more, residual maturity of three years at the time of first purchase by FIIs and a lock-in period of three years. During this lock-in period, FIIs can trade amongst themselves, but cannot sell to domestic investors, a Finance Ministry statement said here on Monday.
The above changes will be notified by SEBI by October 15, the statement added.
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