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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 ..... st 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, for the purpose of investing in corporate debt securities at times of market d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 enter the details of settlement made as per the waterfall mechanism explained in the framework along with a Statutory Auditor Certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 responsibilities as it may deem necessary in the interest of the scheme. (v) The structure of the MC shall be as under: a) Secretary, DEA, Chairperson b) Financial Advisor, DEA, Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 by AMUNDI Asset Management through a wholly owned subsidiary, AMUNDI India Holding. (iv) SBI AMC will be the settlor of the Fund. A new trustee company will be set up by SBI with 2/3rd independent directors in its Board. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line 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 at the end of the financial year following the one in which the specified scheme(s) are launched. (iv) The Fund will be eligible to take leverage of up to 10 times of contribution to corpus, from banks or bond market or repo market whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 managers). 2.6 Trigger and Duration of Market Dislocation (i) As the Sectoral Regulator for Corporate Debt Market, the SEBI Board shall decide the trigger of debt market disruption warranting the Backstop Facility to operate in times of market dislocation and consequently th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. (ii) The Fund can hold the corporate debt securities till maturity or can sell the same in the secondary market when the market dislocation eases out. Since the objective is to provide liquidity at times of market dislocation, CDMDF will monitor the market post market dislocation in consultation with SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specified debt-oriented MF Schemes as on August 31, 2022 and may vary depending on AUM 2.10 Reporting and Monitoring Mechanism (i) CDMDF being an AIF will be regulated by SEBI under AIF Regulations. Considering the strategic importance of the entity, a mechanism shall be developed for periodic reporting (monthly basis) to SEBI. (ii) The reporting to the Government of India shall be made on quarterly basis regarding investment and operational affairs of the CDMDF. (iii) During times of market dislocation, if securities are purchased by borrowings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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