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UC Inclusive Credit Private Limited’s Series A fund raise

JSA represented UC Inclusive Credit Private Limited (“UCIC”) in its Series A fundraise. UCIC is an impact-focused non-banking finance company with headquarters in Bengaluru. UCIC provides debt and structured finance products to entities whose scope of operations includes areas of financial inclusion (including micro-financial institutions, MSME, and SME finance), financial technology, healthcare, agriculture, education, renewable energy and women empowerment. The lead investor in this round was Insitor Impact Asia Fund II.

In addition to negotiating and finalizing the transaction documents, and assisting with the closing, JSA also advised on various other facets of this transaction, including providing inputs to the existing investor – Aarin Capital Partners and assisting Unitus Capital Mauritius (the majority shareholder) with its internal agreements.

Incoming lead investor Insitor Impact Asia Fund II was represented by Anoma Legal.

Our Transaction Team Comprised Lead Partner – Gerald Manoharan, Partner – Manuel Jose, and Senior Associate – Manas Ingle.

Tags Banking and Financial Services, Funding, JSA, Leading Law Firm, Leading Lawyers, Series A

Initial Public Offering of INOX India Limited

JSA advised ICICI Securities Limited and Axis Capital Limited in the initial public offering of equity shares aggregating to ₹ 14,593.23 million (“IPO”), comprising an offer for sale by certain shareholders of INOX India Limited (“Company”). The Company has over 30 years of experience offering solutions across design, engineering, manufacturing and installation of equipment and systems for cryogenic conditions.

As per news reports, the IPO was oversubscribed 61.28 times with 15.30 times subscription in the retail category, 147.80 times subscription in QIB category and 53.20 times subscription in the NII category.

Our transaction team comprised Lead Partner – Arka Mookerjee, Partner – Pracheta Bhattacharya, Principal Associate – Krupa Brahmbhatt, Associate – Akash Joshi and Jeebitesh Bhattacharya.

Tags Banking and Financial Services, Capital Markets, INOX, IPO, JSA, Leading Law Firm, Leading Lawyers, SEBI

IPO of DOMS Industries Limited

JSA advised JM Financial Limited, BNP Paribas, ICICI Securities Limited and IIFL Securities Limited in the initial public offering of equity shares aggregating to ₹12,000 million (“IPO”), comprising of fresh issue and offer for sale by certain promoters of the Company of DOMS Industries Limited (“Company”).

As per news reports, the IPO was oversubscribed 99.34 times with 73.38 times subscription in the retail category, 122.16 times subscription in QIB category and 70.06 times subscription in the NII category.

The Company offers well-designed and quality ‘stationery and art material’ products to consumers, which they classify across seven categories: (i) scholastic stationery; (ii) scholastic art material; (iii) paper stationery; (iv) kits and combos; (v) office supplies; (vi) hobby and craft; and (vii) fine art products. As per the Technopak Report, the Company has the widest breadth of product categories amongst its peers in India and are amongst the few ‘stationery and art material’ products manufacturing and marketing companies globally with such a wide product breadth.

Our Transaction Team Comprised Lead Partner – Arka Mookerjee, Partner – Pracheta Bhattacharya, Principal Associate – Anshu Bansal, Associate – Pooja Tada, Shambhavi Kumar, Reshmi Prabhakar, Ayushi Pandit and Anvita Sinha.

Tags Banking and Finance, Capital Markets, IPO, JSA, Leading Law Firm, Leading Lawyers, Manufacturing, SEBI, Stationery

Restrictions on Investments in Alternative Investment Funds by Regulated Entities

Please click here to download the Prism as PDF.

The Reserve Bank of India (“RBI”) has issued a circular on December 19, 2023 on “Investments in Alternative Investment Funds (“AIF”)” (the “Instructions”), for regulating investments in AIF’s by banks and financial institutions.

Evergreening

‘Evergreening’ refers to the practice of a lender extending a new loan to a borrower, for assisting repayment of an existing loan. Evergreening does not resolve the actual financial stress in the borrower and adds to long term asset deterioration and associated systemic risks.

Background

Resultantly, the RBI has stipulated in its Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 (“June 7 Framework”) that repayment/ refinancing of loans availed from the Indian banking system, or with the support (where permitted) from the Indian banking system in the form of guarantees/ standby letters of credit/ letters of comfort, will be treated as ‘restructuring’ if the borrower concerned is under financial difficulty.

In what appears to be a step in the same direction, the Instructions restrict Regulated Entities (as defined below) from making investments in any scheme of an AIF[1], which has downstream investments, either directly or indirectly, in a ‘debtor company of the Regulated Entity’.

Applicability of the Instructions

The Instructions apply to the following (“Regulated Entities”):

All commercial banks (including small finance banks, local area banks and regional rural banks)
All primary (urban) co-operative banks/state co-operative banks/ central co-operative banks
All all-India financial institutions
All non-banking financial companies (including housing finance companies)

Restrictions under the Instructions

Regulated Entities are prohibited from making investments in any scheme of AIFs which have ‘downstream investments’, either directly or indirectly, in a ‘debtor company of such Regulated Entity’. ‘Debtor company of the Regulated Entity’, for this purpose, means any company to which the Regulated Entity currently has or previously had a loan or investment exposure anytime during the preceding 12 (twelve) months.
If an AIF scheme, in which the relevant Regulated Entity is already an investor, makes a ‘downstream investment’ in any such debtor company, then the Regulated Entity must liquidate its investment in the scheme within 30 (thirty) days from the date of such downstream investment by the AIF. If investment by the Regulated Entities into such schemes has already been done as on the date of the Instructions, then the 30 (thirty) days period for divestment will be counted from the date of the Instructions.
In case the Regulated Entities are not able to liquidate their investments within the time limit prescribed under the Instructions, then they are required to make 100 % provisions on such investments.
In addition, investment by Regulated Entities in the subordinated units of any AIF scheme with a ‘priority distribution model’ will be subject to full deduction from Regulated Entity’s capital funds. These priority distribution models are currently pending consideration by Securities and Exchange Board of India. While the RBI has not prohibited Regulated Entities from subscribing to these subordinated units, however, have prescribed a significant economic disincentive against such investments.

Conclusion

The Instructions are a step in the right direction in trying to make timely identification, and comprehensive resolution of financial stress, for the banking sector. The Instructions are different from any other RBI regulations in so far as it not only restricts investments being made to the existing borrowers of the Regulated Entities but also in borrowers, who have had loans from such Regulated Entities in the past 12 (twelve) months.

However, the Instructions appear to be in the nature of sweeping prohibition of investments in AIF having any exposures in debtor companies, and not only those debtor companies which are in financial difficulty – as is the approach adopted in the June 7 Framework. This may have an unintended consequence of Regulated Entities being prohibited from a large pool of quality investments.

Additionally, this may add to complications in closures of AIF schemes and management thereof. Investment portfolios of schemes with more than one Regulated Entities, or with a mix of Regulated Entities and other investors, may become extremely limited and rift with inter- investor conflicts of interest. The investment managers of the AIF schemes may face challenges in either attracting the right mix of investors or in identifying the right investment opportunities which can cater to investors with different investment restrictions.

Further, as a matter of working of AIFs, a unitholder may not always have prior information of where the investment manager proposes to invest. Obtaining this information generally, and also in cases where investments are proposed to be made in listed companies, may pose additional legal complexities. In such a scenario, the compliance obligation on the Regulated Entities and the general investment decision making of AIFs, can get very complex.

Investment managers will need to ensure that the investors who are Regulated Entities are obligated to make disclosures regarding the name/identity of their respective debtor companies, prior to the scheme’s initial closing, and also during the tenure of the scheme.

Every Regulated Entity who is an existing investor in an AIF scheme, must also ensure (either through exercise of veto rights or other contractual rights under the contribution agreement or investment management agreement) that the AIF scheme does not make any subsequent downstream investment in any of its debtor company.

Practically, liquidation of existing investments of Regulated Entities within 30 (thirty) days may be fraught with several challenges, in which case, they will be faced with high provisioning requirements.

This Prism has been prepared by:

Soumitra Majumdar
Partner

Arrchana A Panchall
Partner

Utkarsh Bandhu
Partner

For more details, please contact [email protected]

[1] Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 define AIF as any fund in the form of a trust, company, limited liability partnership, or a body corporate which is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors and is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.

Tags Banking and Finance, Finance, Investment Fund, JSA, JSA Prism, Leading Law Firm, Legal Updates, RBI

Proposed offering of units by Bharat Highways InvIT

JSA is advising ICICI Securities Limited, Axis Capital Limited, HDFC Bank Limited and IIFL Securities Limited in relation to the proposed initial public offering of units of Bharat Highways InvIT (“InvIT”), an infrastructure investment trust, comprising an issuance of units aggregating up to ₹21,000.00 million (“Issue”). As part of the transaction, the InvIT will also acquire seven road assets, operating on a hybrid annuity model, from G R Infraprojects Limited. Bharat Highways InvIT has filed its draft offer document with SEBI on December 7, 2023.

Deal value: Rs. 21,000 million

Our Transaction Team Comprised Lead Partner – Arka Mookerjee, Partner – Pracheta Bhattacharya, Senior Associate – Sourav Modi and Associate – Jeebitesh Bhattacharya.

Tags Banking & Financial Services, Capital Markets, InvIT, JSA, Leading Law Firm, Leading Lawyers, SEBI

JSA Newsletter | Finance | November Edition 2023

Please click here to download the Newsletter as PDF.

This Newsletter sets out some of the key legislative and regulatory updates in the banking and finance space for the month of November 2023.

Introduction of procedural framework by SEBI for dealing with unclaimed amounts lying with entities issuing securities

The Securities and Exchange Board of India (“SEBI”) has issued 3 (three) circulars all dated November 8, 2023, on procedural framework for dealing with unclaimed amounts lying with (a) entities having listed non-convertible securities, (b) Real Estate Investment Trusts (REITs), and (c) Infrastructure Investment Trusts (InvITs), and also the manner in which such amounts can be claimed by investors / unitholders (collectively the “Circulars”).

According to (a) the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (b) the SEBI (Real Estate Investment Trusts) Regulations, 2014, and (c) the SEBI (Infrastructure Investment Trusts) Regulations, 2014, any unclaimed amount of investors / unitholders lying with listed entities / REITs / InvITs, respectively (collectively the “Issuing Entities”), should be transferred to SEBI’s ‘Investor Protection and Education Fund’ (“IPEF”) in accordance with the provisions of the respective regulations.

Further, the SEBI (Investor Protection and Education Fund) Regulations, 2009, provides that in case any Issuing Entity processes claim of an eligible investor for the entitled amounts which have been transferred to IPEF, then such Issuing Entity may file an application to SEBI for refund of such amount that has been processed out of the IPEF.

By way of these Circulars, SEBI has issued a framework for defining the abovementioned procedures, i.e., (a) for transfer of unclaimed amounts initially to an escrow account, (b) subsequently, for transfer of such amounts to the IPEF, and (c) lastly, for claim thereof by an investor / unitholder. Format has been prescribed by SEBI filing of application for refund by the Issuing Entities to the IPEF. The key provisions for procedural framework dealing with unclaimed amounts lying with entities having listed non-convertible securities are as follows:

this framework is applicable to entities having listed non-convertible securities with interest/ dividend/ redemption amount which has not been claimed within 30 (thirty) days from the due date of interest/ dividend/ redemption payment;
the listed entity must, within 7 (seven) days from the date of expiry of the said period of 30 (thirty) days, transfer the unclaimed amounts to an escrow account to be opened by it in any scheduled bank;
the listed entity must designate a ‘Nodal Officer’ who may either be a Director, Chief Financial Officer, Company Secretary or Compliance Officer of the listed entity as the point of contact for (a) investors entitled to claim their unclaimed amounts and (b) SEBI, stock exchange(s) and depositories; and
the listed entity must provide a search facility on its website for investors to verify if there is any unclaimed amount due to them and lying in the escrow account of the listed entity.

The key provisions for procedural framework for dealing with unclaimed amounts lying with REITs/ InvITs are as follows:

where a distribution has been made by the manager, but the payment to any unitholders has remained unpaid or unclaimed, up to 15 (fifteen) days from the date of declaration, the manager must, within 7 (seven) working days from the date of expiry of such period of 15 (fifteen) days, transfer such unclaimed amounts to an escrow account to be opened by it on behalf of the InvIT/ REIT in any scheduled bank;
the manager, must, within a period of 30 (thirty) days of transferring the unclaimed amount to the ‘Unpaid Distribution Account’, upload the details on the website of InvIT/ REIT in the prescribed format;
the manager must provide a search facility on the website of InvIT/ REIT for unitholders to verify if there is any unclaimed amount due to them and lying in the ‘Unpaid Distribution Account’ of the InvIT/ REIT; and
the manager of the InvIT/ REIT must formulate a policy specifying the process to be followed.

RBI’s new guidelines to govern payment aggregator in cross-border transactions

On October 31, 2023, the Reserve bank of India (“RBI”), notified new guidelines (“PA-CB Guidelines”) to regulate entities that process online cross-border payments. Until now, these entities were called online payment gateway service providers (“OPGSP”). Now, they will be regulated as ‘Payment Aggregators – Cross Border’ (“PA-CB”). Most notably, PA-CBs will need RBI’s license to operate. Existing OPGSPs need to apply for the license by April 30, 2024. Interestingly, non-bank PA-CBs are also required to register with the Financial Intelligence Unit-India before registering with the RBI. The PA-CB Guidelines replaced the draft Online Export Import Facilitators Directions issued in April 2022 which was abandoned by RBI post consultations with industry stakeholders. Further, entities, including Authorised Dealer banks, PAs and PAs-CB, involved in processing/ settlement of cross-border payment transactions for import and export of goods and services, must also comply with the PA-CB Guidelines.

For a detailed analysis, please refer to the JSA Prism of November 7, 2023.

Sovereign Green Bonds included in Fully Accessible Route for investment by Non-residents

RBI on March 30, 2020, had introduced the ‘Fully Accessible Route’ (“FAR”) for investment by non-residents in securities issued by the Government of India. Under the FAR, non-resident investors were allowed to invest only in certain specified categories of Central Government securities without any restrictions, like any domestic investors.

Now, by way of a notification dated November 8, 2023, RBI has designated all Sovereign Green Bonds issued by the Government of India in the fiscal year 2023-24 as ‘specified securities’ under the FAR. Thus, the said Sovereign Green Bonds will be fully open for investment by non-resident investors without any restrictions.

Opening of additional current account for exports proceeds

RBI, vide circular dated November 17, 2023, has allowed the settlement of India’s international trade in rupee. In this regard, the Authorised Dealer Category – I banks maintaining Special Rupee Vostro Account Account as per the provisions of RBI notification dated July 11, 2022, on ‘International Trade Settlement in Indian Rupees’, are permitted to open an additional special current account for its exporter constituent exclusively for settlement of their export transactions.

Regulatory measures towards consumer credit and bank credit to Non-Banking Financial Companies (“NBFCs”)

RBI, vide circular dated November 16, 2023, has issued regulatory measures towards consumer credit and bank credit to NBFCs. Pursuant to Governor’s Statement dated October 6, 2023, the following key measures have come into effect:

Consumer credit exposure of commercial banks/ NBFCs and credit card receivables – the risk weights in respect of consumer credit exposure of commercial banks, including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewelry, is increased by 25%, i.e., from 100% it is now 125%. The risk weights on such consumer credit exposures of scheduled commercial banks and NBFCs are increased by 25% to 150% and 125% respectively. The risk weights on such exposures of scheduled commercial banks to NBFCs is increased by 25% points in all cases where the extant risk weight as per external rating of NBFCs is below 100%.
Bank credit to NBFCs – the risk weights of scheduled commercial banks are increased by 25 % points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. For this purpose, loans to housing finance companies, and loans to NBFCs which are eligible for classification as priority sector in terms of the extant instructions will be excluded.
Strengthening credit standards – Regulated Entities (“REs”) will review their existing sectoral exposure limits for consumer credit. Limits are to be prescribed for all unsecured consumer credit exposures and these limits will be strictly adhered to and monitored on an ongoing basis by the Risk Management Committee. All top-up loans extended by REs against movable assets which are inherently depreciating in nature, such as vehicles, will be treated as unsecured loans for credit appraisal, prudential limits and exposure purposes.

Limited Liability Partnership (“LLP”) to report about significant beneficial owners to the Registrar of Companies (“Registrar”)

The Ministry of Corporate Affairs, vide notification dated November 9, 2023, has issued the LLP (Significant Beneficial Owners) Rules, 2023 (“Rules”). The key provisions are as follows:

each LLP required to report must take necessary steps to find out if there is any individual who is a significant beneficial owner, in relation to that reporting LLP, and if so, identify him and cause such individual to make a declaration in Form No. LLP BEN- I;
every individual who is a significant beneficial owner in a reporting LLP, must file a declaration in Form No. LLP BEN-I to the reporting LLP within 90 (ninety) days from the commencement of the Rules. Subsequent changes in significant beneficial ownership must be reported within 30 (thirty) days;
on receiving declarations, reporting LLPs must file a return in Form No. LLP BEN-2 with the Registrar within 30 (thirty) days. Additionally, LLPs are required to maintain a register of significant beneficial owners as prescribed in Form No. LLP BEN-3;
each LLP required to report must notify its partner (other than an individual), holding at least 10% of its (a) contribution; (ii) voting rights; or (iii) right to receive or participate in the distributable profits or any other distribution payable in a financial year, as per Form no. LLP BEN -4; and
these Rules do not apply to specific entities, such as contributions held by the Central Government, State Government, local authorities, or certain regulated investment vehicles.

This Newsletter has been prepared by:

Nand Gopal Anand
Partner

Vrindesh Patel
Associate

For more details, please contact [email protected]

Tags Crossborder, Finance, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, NBFCs, SEBI, Sovereign Green Bond

Proposed IPO of Kross Limited

JSA is advising Kross Limited and Equirus Capital Private Limited in relation to the proposed initial public offering of equity shares of Kross Limited (“IPO”) comprising a fresh issue of up to ₹2,500.00 million and an offer for sale by the promoters of up to ₹2,500.00 million. Kross Limited has filed its draft red herring prospectus with SEBI on November 30, 2023.

Kross Limited is a diversified player focused on manufacturing and supply of trailer axle and suspension assembly and a wide range of forged and precision machined high performance safety critical parts for medium and heavy commercial vehicles and farm equipment segments and is one of the prominent manufacturers of trailer axles and suspension assembly in India.

Deal value: INR 5,000.00 million

Our transaction team lead partner – Arka Mookerjee, partner – Pracheta Bhattacharya, principal associate – Anshu Bansal, Senior Associate – Sourav Modi, Associate – Jeebitesh Bhattacharya, Pooja Tada, Shambhavi Kumar, Anvita Sinha.

Tags Banking and Financial Services, Capital Markets, IPO, JSA, Leading Law Firm, Leading Lawyers

THE GROWING ROLE OF PRIVATE CREDIT IN THE INDIAN DEBT MARKET

Private credit is the buzzword on deal street. The global private credit market is estimated to be US$ 1.5 trillion and likely to reach US$ 2.7 trillion by 2027. While most of this is centred around the United States and Europe, private credit is rapidly becoming an alternate pool of debt capital in India. Some reports estimate that private credit investors had almost US$ 15 billion of assets under management in India as of December 2022 and over US$ 4 billion was deployed in the first half of 2023 alone.

In the aftermath of the crisis in the non-banking financial sector, many non-banking financial companies have focussed their attention to the retail sector and are re-balancing their wholesale debt exposures. Indian banks, who have recovered some of their non-performing loans thanks to the Insolvency and Bankruptcy Code, 2016 (“IBC”), have pulled back from riskier corporate loans. As a result, there is an increase in demand for new avenues of debt capital. The IBC has brought about a robust insolvency regime and in the last seven years, more than 800 resolution plans have been approved and creditors have realised over Rs. 3.16 trillion. Several promoters have lost control over their companies and creditors have truly been in the driving seat for the first time in India. Not surprisingly, debt alternative investment funds have mushroomed in India over the past few years, and global and Asia Pacific credit funds have also steadily increased their allocation to India.

Please click here to read the full article by Aashit Shah, published in Asian Legal Business.

Tags Banking and Financial Services, Credit Market, Debt market, Ibc, JSA, Leading Law Firm, Leading Lawyers

Fedbank Financial Services IPO

JSA advised ICICI Securities Limited, BNP Paribas, Equirus Capital Private Limited and JM Financial Limited in relation to the initial public offering of equity shares by Fedbank Financial Services Limited, aggregating to INR 10,922.64 million through a fresh issue of equity shares and an offer for sale by The Federal Bank Limited and True North Fund VI LLP.

Deal Value: INR 10,922.64 million

Our Transaction Team Lead Partner – Arka Mookerjee, Partner – Siddhartha Desai, Principal Associate – Anshu Bansal, Senior Associate – Sourav Modi, and Associate – Shambhavi Kumar, Anvita Sinha and Ayushi Pandit.

Tags Banking, Banking and Financial Services, Capital Markets, IPO, JSA, Leading Law Firm, Leading Lawyers

Qualified institutions placement by RateGain Travel Technologies Limited

JSA advised IIFL Securities Limited and Axis Capital Limited in relation to the qualified institutions placement by RateGain Travel Technologies Limited (“RateGain“). RateGain filed a placement document on November 10, 2023 for an issue of 9,331,259 equity shares to qualified institutional buyers aggregating to approximately ₹ 6,000.00 million.

RateGain is a leading global provider of software as a service solutions in the hospitality and travel industry, offering travel and hospitality solutions across a wide spectrum of and is one of the world’s largest aggregator and processor of travel pricing data for the hospitality and travel industry.

Deal Value: INR 6,000 million

Our Transaction Team Comprised Lead Partner – Arka Mookerjee, Partner – Pracheta Bhattacharya, Principal Associate – Anshu Bansal, Senior Associate – Sourav Modi, Associate – Pooja Tada, Jeebitesh Bhattacharya, Shambhavi Kumar and Anvita Sinha.