FIIs allowed to invest $20 b more in bonds of infrastructure cos

New Delhi: In keeping with its thrust on infrastructure development and also deepening the corporate debt market, the Centre has hiked the foreign institutional investors (FII) investment limit in corporate bonds to $40 billion.

It represents an increase of $20 billion over the earlier limit of $20 billion under this window.

The additional limit of $20 billion will be available to FIIs only for investments in corporate bonds issued by companies in the infrastructure sector, the Finance Minister, Mr Pranab Mukherjee, said in his Budget speech today.

Also, the investments would have to be made in bonds with residual maturity of over five years.

This move would in effect take the overall limit for FII investment in corporate bonds of companies in the infrastructure sector to $25 billion.

Prior to this announcement, the total FII investment limit in corporate bonds was pegged at $20 billion, including a $5-billion sub-limit for bonds with a residual maturity of over five years and issued by companies in the infrastructure sector.

Meanwhile, Mr Mukherjee today announced that FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. This is being allowed as most of the infrastructure companies are organised in the form of special purpose vehicles, it was pointed out.

However, the FIIs will be allowed to trade among themselves during the lock-in period.

To enable higher FII investment flows into the corporate debt market, the Centre had in January 2009, at the peak of the financial crisis, raised the FII investment cap in corporate bonds to $15 billion from $6 billion.

This limit was further hiked by $5 billion in September 2010 but with a rider that this incremental limit be invested in securities with a residual maturity of over five years issued by companies in the infrastructure sector.

This move was intended to ensure greater participation of FIIs on a longer term basis and also enable the flow of long-term resources to the infrastructure sector.