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๐’๐„๐๐ˆ ๐ข๐ฌ๐ฌ๐ฎ๐ž๐ฌ ๐ข๐ง๐Ÿ๐จ๐ซ๐ฆ๐š๐ฅ ๐ ๐ฎ๐ข๐๐š๐ง๐œ๐ž ๐จ๐ง ๐ข๐ง๐ฏ๐ž๐ฌ๐ญ๐ฆ๐ž๐ง๐ญ ๐›๐ฒ ๐š๐ง ๐€๐ˆ๐… ๐ญ๐ก๐ซ๐จ๐ฎ๐ ๐ก ๐š๐ง ๐€๐‘๐‚ ๐“๐ซ๐ฎ๐ฌ๐ญ

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SEBI recently under its informal guidance has provided clarity on the concentration limit for investments by an Alternative Investment Fund (AIF) through an Asset Reconstruction Company (ARC) Trust held under an ARC.

Under Regulation 15 (1)(c) of the AIF Regulations, a Category I and Category II AIF shall not invest more than 25% of its investable funds in an investee company (Concentration Limit) directly or through investment in units of other AIF.

In general, an ARC acquires stressed loans of a Target Companies from the banks and holds such stressed loans along with its collaterals, guarantees and the mortgaged assets through its multiple trusts called the ARC Trusts. The loans of a particular Target Company are held by one specific trust, which then issues security receipts related to that particular Target Company.

๐๐ฎ๐ž๐ฌ๐ญ๐ข๐จ๐ง ๐›๐ž๐Ÿ๐จ๐ซ๐ž ๐’๐„๐๐ˆ: with respect to calculating the limit of 25% in an Investee Company as mentioned in regulation 15(1)(c), whether the threshold limit would be applicable at the level of individual Target Company acquired by the ARC Trust (one ARC Trust may have assigned to it NPA Loan Accounts of many such Target Companies) or at the level of the individual ARC Trust regardless of multiple Target Company loan accounts it may hold.

SEBI is of the view that for the purpose of Regulation 15 (1)(c) of the AIF Regulations, the concentration limit is calculated by including both investments made โ€˜directlyโ€™ as well as โ€˜through investment in units of other AIFโ€™. Thus, the investment at the investee company level will be taken into consideration. Accordingly, in the given context, the concentration limit shall be applicable at the level of individual target company acquired by the ARC Trust in addition to the investment made directly by the AIF in the Target Company. Any indirect exposure to the target company in excess of 25% of the AIFโ€™s investable funds will be held to be in violation of Regulation 15(1)(c) of the AIF Regulations.

Copy of the informal guidance is attached herewith. 

Readers are welcome to share their views with Regstreet Law Advisors on info@regstreetlaw.com.

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