TMI BlogGuarantee Scheme for Corporate Debt (GSCD) approved - Debt raised/ to be raised by Corporate Debt Market Development Fund (CDMDF) for the purpose of providing guarantee cover.X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme To provide 100% guarantee cover against debt raised/to be raised by CDMDF, an Alternative Investment Fund (AIF) created/ to be created under relevant SEBI Regulations, for the purpose of investing in corporate debt securities at times of market dislocation with a view to stabilize the markets. The guarantee shall cover debt raised, along with interest accrued and other bank charges thereon, and shall not exceed Rs.30,000 crore. The framework for CDMDF has been detailed in Annexure . 3. Date of commencement The scheme guidelines shall come into force from the date of issue of this Notification. 4. Duration of scheme The Scheme would be initially for a period of 15 years from the initial closing date of CDMDF, extendable at the discretion of the DEA in consultation with SEBI. 5. Definitions For the purposes of this Scheme (i) Backstop Facility refers to the institutional framework being created to enable purchase of investment grade debt securities, particularly during market dislocation. (ii) Corporate Debt Market Development Fund (CDMDF) means an Alternative Investment Fund (AIF) created/ to be created under SEBI Regulations, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of market dislocation period. However, the timeline may be extended with the approval of SEBI Board. 8. Guarantee Issue and Monitoring Mechanism (i) The MLI, after due screening of the application of CDMDF, shall sanction the loan to CDMDF and enter the requisite details on NCGTC s portal designed for the said purpose. (ii) A Guarantee Number, based on preliminary screening by the portal and approval by NCGTC, shall be auto generated indicating the availability of guarantee on the said loans. (iii) Once the guarantee number is issued to MLI, the MLI shall enter the details of the loans disbursed to CDMDF on NCGTC s portal within two days of disbursement. (iv) CDMDF shall arrange to forward details of utilization of the loans on NCGTC s portal on a daily basis. (v) The authorized person of CDMDF shall enter the details of the sale of debt instruments on NCGTC s portal on the day of sale itself. (vi) The guarantee against the drawl amount shall remain valid for the period of five years from the last day of market dislocation. However, guarantee shall be valid upto the date of claim in case of claim. 9. Guarantee Settlement Mechanism (i) CDMDF shall en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y GFCD from time to time with regard to the scheme guidelines. 15. Responsibilities of SEBI under the Scheme (i) Creation of CDMDF; (ii) Once the backstop facility is activated, i.e. market dislocation is declared, then SEBI will review its continuation internally and confidentially every fortnight. While making such reviews, the number of Watch Lists/ Alerts/ Triggers from the FSI during the fortnight would be factored in by SEBI; (iii) Comply with such other directions, regarding the operation of the Scheme, that DEA may provide to SEBI from time to time. 16. Management Committee of GFCD (i) There shall be a Management Committee (MC) constituted by the Department of Economic Affairs (DEA), Ministry of Finance to oversee the affairs of the Trust. (ii) The MC shall be responsible for reviewing, supervising and monitoring the functioning of the Trust and shall provide necessary guidance to the Trust/Trustee on broad policy matters related to the Scheme. (iii) The MC shall be fully empowered to recommend changes/modifications in the scheme as it may deem fit, for approval of the Competent Authority. (iv) DEA may entrust the MC with such other responsibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) To ease redemption pressures in mutual fund schemes during times of market dislocation. (v) To facilitate liquidity for investors at large. 2. Proposed Mechanism of CDMDF 2.1 Structure and Tenure : (i) CDMDF would be set up as an Alternative Investment Fund (AIF) in the form of a Trust under SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations). (ii) CDMDF shall be launched as a closed-ended scheme with an initial tenure of 15 years from the date of its initial closing. Based on the requirements of the corporate bond market, the tenure can be extended with prior approval of the Government of India in consultation with SEBI. The entire framework shall be reviewed after 12 years from the date of its initial closing. (iii) The Investment Manager-cum-Sponsor of the Fund shall be SBI Funds Management Ltd., the Asset Management Company of SBI Mutual Fund ( SBI AMC ), which is a Deemed Government Company under the Companies Act, 2013, as it is owned and controlled directly or indirectly by the Government. As per the audited accounts as on March 31, 2021, SBI holds ~63% stake in SBI Funds Management Limited (SBI AMC) and ~37% stake is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the near normalcy of the market post market dislocation in consultation with SEBI and offload a large part of its holdings within a reasonable time of 3 months from the end of the market dislocation period. However, the above timeline may be extended with the approval of SEBI Board. (iv) The securities purchased by CDMDF need to have an investment grade credit rating and residual maturity not exceeding 5 years on the date of purchase. CDMDF shall not buy unlisted or below investment grade or defaulted debt securities or securities in respect of which there is a material possibility of default or adverse credit news or views. 2.3 Funding: (i) The contribution to the Fund shall be mandatory for the specified debt-oriented MF Schemes and AMCs as laid down by SEBI. (ii) Specified debt-oriented MF Schemes shall contribute 25 bps of their AUM to the Fund (~Rs. 3,005, Cr. based on AUM as on August 31, 2022). (iii) AMCs shall make a one-time contribution equivalent to 2 bps of the AUM of their specified debtoriented MF schemes. Further, AMCs of new MFs shall also make a one-time contribution equivalent to 2 bps of their specified debt-oriented MF schemes, based on the AUM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate bond market experts including academicians, CEOs or CIOs, risk management professionals, independent market experts, etc. (ii) All the policies of the Fund shall be jointly approved by the GC, Board of IM and Board of Trustee/Trustee Company. (iii) GC, while also approving the policies of the Fund, would take a more hands-on approach to supervise the activities of the Fund and oversight of the Investment Committee, especially relating to management of conflict of interest, if any. (iv) GC will also have oversight on management of asset liability mismatches during times of market dislocation as borrowed money would be used to purchase assets of the scheme at that stage. 2.5.3. The Investment Committee (IC) shall be internal to the Investment Manager and would perform various activities of the Fund, including the actual buy and sell decisions of the Fund. Any deviation from the fair price would need to be mandatorily approved by the Investment Committee of the CDMDF. 2.5.4. Management Team would be a part of IM which includes the fund management, trading, risk and research team etc. and comprises experienced professionals (such as fund managers and risk ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Fund there could be multiple instances of trigger. (v) The recovery from sale of assets held shall be settled against the claim from borrowing. (vi) Shortfall, if any, is to be absorbed in accordance with the waterfall mechanism for loss absorption as laid down in this framework. (vii) If recovery is greater than the borrowing, excess can be retained by the Fund (viii) In case of invocation of guarantee, underlying outstanding bank loans/debt obligations, would be paid by the NGCTC. (ix) During the period when borrowing against the guarantee is outstanding, no payouts (wherever permitted) to unitholders should be made. 2.8 Mechanism of investment during times of Market Dislocation (i) The Fund shall buy single or basket of listed investment grade corporate debt securities with tenure not exceeding residual maturity of 5 years only from the secondary market from the contributing MF schemes at fair price determined as per existing norms of valuation (adjusted for liquidity risk, interest rate risk and credit risk). At a portfolio level, the sellers of debt securities would be paid 90% of the consideration in cash and 10% in terms of units of CDMDF. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MF shall be in proportion to aggregate contribution by all the schemes of the said MF to the Fund in accordance with detailed guidelines as may be approved by SEBI. 2.9.2. Loss Absorption Waterfall The issue of moral hazard is addressed by way of skin in the game from AMCs and the contributing MF schemes. The CDMDF shall buy securities at fair price adjusted for liquidity risk, interest rate risk and credit risk. Further, the risk of first loss shall rest with MF schemes selling to the Fund. Details of the same areas under: Level of loss absorption Particulars Amount. (INR) 1st Up to 10% by MF schemes selling debt securities to the Fund (i.e., equivalent to the units outstanding of the selling MF schemes issued to them against sale of securities to CDMDF) ~ Upto Rs. 3,600 cr.* 2nd Contribution of specified debt-oriented MF Schemes and AMCs ~ Upto Rs. 3,245 cr.* 3rd Government Guarantee ~ Upto Rs. 30,000 cr. *Based on AUM of speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cility is activated, SEBI will review its continuation internally and confidentially every fortnight. While making such reviews, the number of Watch Lists/ Alerts/ Triggers from the FSI during the fortnight would be factored in by SEBI. Subsequent to such fortnightly review, if the SEBI Board comes to a view that backstop facility could be withdrawn, the facility can then be withdrawn with two days notice to the market. (viii) The market dislocation period may be considered to have ended, if no alert from the aforesaid model appears for a continuous period of 3 months. 2.12 Disclosures (i) There shall be a mechanism for daily disclosure of NAV to the unitholders. (ii) The portfolio of the Fund would be disclosed to the unitholders on fortnightly basis. (iii) The norms applicable to AMCs and MF schemes for disclosure in respect of their investments in CDMDF shall be specified appropriately under the regulatory framework for MFs. 2.13 Audit of CDMDF by CAG CDMDF being floated by SBI AMC may be audited by auditors appointed by C AG, provisions relating to the same shall be appropriately incorporated in the trust deed of CDMDF. Department of Economic Affairs ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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