IN a major policy decision the Ministry of Finance has relaxed the various norms notified for FIIs' investment in long-term bonds for the infrastructure sector. To make the scheme announced in this year Budget Speech and later notified by the SEBI, more attractive, the Govt has decided to permit qualified foreign investors to subscribe to MF Debt Schemes which investment in the infrastructure sector to a total overal ceiling of USD THREE Billion within the existing ceiling of USD 25 bn.

It has now been decided to carve out USD 5 billion out of the remaining USD 22 billion for FII investments in Long-term infra bonds. FIIs can now invest in long-term infra bonds, subject to the above USD 5 billion limit, in bonds which have an initial maturity of five years or more at the time of issue and residual maturity of one year at the time of first purchase by FIIs. These investments are subject to a lock-in period of one year. FIIs can, however, trade amongst themselves but cannot sell to domestic investors during the lock-in period of one year.

The remaining USD 17 billion limit available to FIIs can be invested in Long-term infra bonds which have an initial maturity of five years or more at the time of issue and residual maturity of three years at the time of first purchase by FIIs. These investments are subject to a lock-in period of three years. During the three-year lock-in period FIIs can trade amongst themselves but cannot sell to domestic investors.

SEBI is expected to issue notifications incorporating the above changes in the scheme by 15th October 2011.