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GIFT City Update – Consultation Paper on SPV Framework Under IFSCA (Fund Management) Regulations, 2022

GIFT City Update – Consultation Paper on SPV Framework Under IFSCA (Fund Management) Regulations, 2022

International Financial Services Centres Authority (“IFSCA” or “Authority”), with powers conferred under Sections 12 and 13 of the International Financial Services Centres Authority Act, 2019, read with of Regulation 29(1) and Regulation 41(1) of the IFSCA (Fund Management) Regulations, 2022 (“FM Regulations”) published a consultation paper on the Special Purpose Vehicle (“SPV”) Framework under the FM Regulations (“SPV Framework”)[1]. This SPV Framework is open for comments and suggestions via e-mail till January 31, 2025. The key features of the SPV Framework include:

I. SPV Structure:

A Fund Management Entity (“FME”) registered with IFSCA can establish an SPV with an existing Controlling Scheme in International Financial Services Centre (IFSC). This SPV shall adhere to the constitution specified in Regulation 17 of the FM Regulations. Moreover, at least 50% (fifty percent) of the SPV’s equity share capital, interest, or capital commitments must be held by the Controlling Scheme, as defined in Regulation 2(1)(h) of the FM Regulations.

II. Filing of Private Placement Memorandum (“PPM”):

    Under the SPV Framework, all requirements under the IFSCA circular of “Ease of Doing Business – Filing of Schemes or Funds under FM Regulations” dated April 05, 2024, must be met, except for the requirement of filing of a PPM. Instead, a ‘Term Sheet’ has been provided in Annexure A of this circular on SPV Framework, which must be filed within 21 (twenty-one) working days from the date of investment.

    III. Eligible Investors and Permissible Investments:

      The eligible investors under the SPV Framework shall include: (a) controlling Scheme; (b) controlling Scheme’s current investors or affiliates of such investors; or (c) other investors.

      Further it is clarified that the SPV may be structured as either open-ended or closed-ended, depending on the characteristics of the Controlling Scheme. The SPV’s term shall align with that of the Controlling Scheme, and if the Controlling Scheme is wound up, the SPV shall also be wound up.

      An SPV shall be established to invest in a single portfolio company. According to the investment strategy of the Controlling Scheme as recorded by the Authority, the SPV may be utilized for co-investment, undertaking leverage, or both, as well as for ringfencing investments of the Controlling Scheme. While the SPV is solely permitted to invest in a single portfolio company, it may hold securities of multiple entities if such securities are owned by the SPV due to one or more corporate actions or restructuring at such portfolio company level including amalgamations, demergers, or slump sales.

      IV. Leverage:

        The leverage at the SPV level must be within the overall leverage limits outlined in the PPM of the Controlling Scheme. Additionally, the Scheme, along with other shareholders, beneficiaries, members, or partners of the SPV, shall be permitted to create an encumbrance over their interests in the SPV in favour of a lender to the SPV.

        V. Disclosures to Investors:

        Disclosures to investors should include all information outlined in the FM Regulations. Additionally, the existing investors of the scheme must be notified about the establishment of the SPV before filing the Term Sheet with IFSCA.

        VI. Other Conditions:

        (a) The valuation and computation of the Net Asset Value (NAV) shall be as per the FM Regulations. Additionally, there shall be no requirement of contribution by the FME in the SPV.

        (b) The FME shall be the decision-making and controlling authority of the SPV.

        (c) Regulation 119(1), 119(2)(a), (b), (c), (e), (g), and (h) of the FM Regulations shall be applicable to the SPV along with any other circulars issued by IFSCA.

        (d) The fees applicable for the SPV shall be commensurate with the fee of the Controlling Scheme. Further for Know Your Customer (“KYC”), the FME may rely on the KYC conducted for the scheme for existing investors. For any new investor in the SPV, the FME shall conduct the KYC in accordance with the requirements for the controlling scheme.

        (e) No other shareholder, beneficiary, member, or partner of the SPV may exercise rights that impede the Controlling Scheme’s compliance with IFSCA regulations.

        (f) The SPV agreement must include a mechanism for resolving disputes between the Controlling Scheme and other shareholders, beneficiaries, members or partners.

        (g) In the event of inconsistencies between the SPV agreement and IFSCA obligations, IFSCA’s provisions will prevail.

        (h) All other obligations specified under the FM Regulations shall be applicable to the SPV.


        [1] https://ifsca.gov.in/Viewer?Path=Document%2FReportandPublication%2Fconsultation-paper_spv-framework09012025022756.pdf&Title=CONSULTATION%20PAPER%20ON%20SPV%20FRAMEWORK%20UNDER%20IFSCA%20%28FUND%20MANAGEMENT%29%20REGULATIONS%2C%202022&Date=09%2F01%2F2025