GIFT IFSC may become an attractive destination for private credit funds, given the tax and regulatory advantages offered by the financial centre.
“The private credit opportunity is large and GIFT City is the ideal place for aggregating international capital, which is why more funds are setting up in the region,” said Srini Sriniwasan, Managing Director, Kotak Alternate Asset Managers.
The RBI circular on evergreening of loans has resulted in a number of private credit funds in India taking a more cautious approach, said experts. This might prompt funds to turn to GIFT IFSC, where the regulatory regime is light touch.
“The increasing demand for alternative financing in India and the growing global investor interest in Indian credit opportunities will spur growth. GIFT IFSC is also attractive for Indian fund managers that seek to invest in global private credit markets,” said Vineet Sukumar, Founder and MD, Vivriti Asset Management and Co-Chair of Credit Council at IVCA.
India’s private credit investments are set to reach $10 billion this year, according to an EY report. While only a handful of the 171 alternative investment funds are set up as private credit funds at GIFT IFSC, the numbers are set to grow, said experts. Anicut Capital recently announced the receipt of $11 million in dollar-denominated investments via GIFT City Structure in its Private Credit Fund 3.
“While private credit funds set up under the Indian regime can cater only to debt requirement of Indian companies, those at GIFT IFSC can provide direct lending to companies across the globe,” said Ketaki Gor Mehta, Partner, Cyril Amarchand Mangaldas.
Funds set up at GIFT IFSC can invest directly through an FPI structure or a master-feeder one.
“More than acting as substitutes to Indian AIFs, the GIFT funds are being set up as feeder funds which invest into the Indian AIFs where the ultimate investment is made by such Indian AIFs. The regulatory framework for foreign investment into an Indian AIF from GIFT is more conducive than for the investment to be made directly in private credit opportunities into India, for which an FPI license may be required,” said Nandini Pathak, Partner, Bombay Law Chambers.
GIFT advantage
Setting up such funds at GIFT IFSC offers strategic advantages including deemed offshore status, freedom to invest in foreign currency without the need for conversion, unlimited leverage subject to disclosures, tax-pass through status, tax exemption on capital gains for 10 out of 15 years and nil GST. It also eliminates the risk of double taxation and potential issues related to PoEM, a test for determining residential status of a company incorporated in a foreign jurisdiction. Mainland India’s regulatory framework lacks such incentives, and investments are subject to restrictions under FEMA.
“Investing in India through credit funds in GIFT City IFSC offers a tax-efficient route for global investors. The 10 per cent tax rate on interest income and capital gains exemption on Indian debt securities make this structure highly attractive, often surpassing tax treaty benefits while ensuring greater certainty and simplicity,” said Jaiman Patel, Partner, EY India.
Way ahead
Formation of GIFT Funds will see an uptick if they are not required to obtain an FPI license to subscribe to debt securities in India, and if Indian investors are also expressly permitted to be pooled in GIFT Funds along with foreign investors, said Pathak.
Sukumar believes that there is a need to further simplify compliance processes, and ensure parity in service offerings with established jurisdictions like Singapore and Luxembourg to attract funds. An internationally transferable custody, internationally acceptable arbitration, access to offshore listed markets and a stable tax regime is the need of the hour, he said.
