The International Financial Services Centres Authority (IFSCA) has introduced a consultation paper to operationalize a structured framework for Special Purpose Vehicles (SPVs) under the IFSCA (Fund Management) Regulations, 2022. This initiative aims to enhance the ease of doing business and foster the growth of the alternative investment industry within International Financial Services Centres (IFSCs).
Background and Objectives
The SPV framework is designed under the powers conferred by the IFSCA Act, 2019, and the relevant Fund Management Regulations of 2022. It enables the creation of SPVs under a “Controlling Scheme,” allowing other investors to co-invest alongside the scheme or facilitate leveraging at the SPV level. This setup is expected to broaden investment opportunities and strengthen financial operations in IFSCs.
SPV Structure
- Formation: Fund Management Entities (FMEs) registered with IFSCA can form SPVs linked to an existing Controlling Scheme in an IFSC.
- Ownership: The Controlling Scheme must hold at least 50% of the SPV’s equity, interest, or capital commitments, ensuring alignment with its investment strategies.
- Constitution: SPVs will follow the constitution outlined in Regulation 17 of the IFSCA (Fund Management) Regulations, 2022.
Private Placement Memorandum (PPM)
SPVs are exempted from filing a comprehensive PPM. Instead, a Term Sheet, as detailed in Annexure A of the paper, must be submitted within 21 working days of the investment.
Eligible Investors
Investors eligible to participate in SPVs include
- The Controlling Scheme.
- Current investors or affiliates of the Controlling Scheme.
- Other approved investors.
Operational Aspects
Nature and Tenure: SPVs can be either open-ended or close-ended, depending on the nature of the Controlling Scheme. However, the tenure of an SPV must align with that of the Controlling Scheme, ensuring a synchronized lifecycle.
Investment Strategy
SPVs will focus on investing in single portfolio companies and may be used for:
- Co-investment.
- Leverage transactions.
- Ring-fencing the investments of the Controlling Scheme.
- SPVs may hold multiple securities due to corporate actions like mergers or demergers but remain tied to the original portfolio company.
Leverage
Leverage at the SPV level must comply with the overall limits specified in the Controlling Scheme’s PPM. Encumbrances over SPV interests for securing loans are permitted, providing flexibility for financing strategies.
Compliance and Transparency
Disclosures: All disclosures mandated by the IFSCA (Fund Management) Regulations, 2022, apply to SPVs.
Investors in the Controlling Scheme must be notified about SPV formation before the Term Sheet submission.
Valuation and NAV
SPVs must adhere to the valuation norms and Net Asset Value (NAV) computation guidelines under the IFSCA (Fund Management) Regulations, 2022.
