In order to make it easier for companies to raise long-term funds in a cost-effective manner, finance minister P Chidambaram on Thursday allowed foreign institutional investors (FIIs) to use their investments in corporate bonds and government securities as collateral to meet their margin requirements.
“FIIs will also be permitted to use their investment in corporate bonds and government securities as collateral to meet their margin requirements,” said Chidambaram. They will also be permitted to participate in exchange traded currency derivatives segments and their limit would be the extent of their Indian rupee exposure in the country, he added.
Corporate bonds are debt securities issued by the companies — private or public. The companies can issue corporate bonds to raise money for building a new plant, purchasing equipment and scaling up their business, among other things.
Experts see the move as an attempt to strengthen the corporate bond market in the country as well as attract more foreign investment into the stock market.
The finance minister left the onus of building a vibrant corporate bonds market and attracting FIIs on the market regulator Securities and Exchange Board of India (SEBI).
As part of its efforts to attract more investments into the capital market, SEBI would prescribe requirements for angel investor pools so that they can be recognised as category venture funds.
“SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors... SEBI will converge the different know your customer (KYC) norms and adopt a risk-based approach to KYC to make it easier for foreign investors such as central banks, sovereign wealth funds, university funds, pension funds, etc., to invest in India,” Chidambaram said.
“The move is likely to provide an additional source of funding to cash-starved companies,” said Rakesh Valecha, director, India Ratings & Research Pvt Ltd, a private rating agency.