AIFs to file Private Placement Memorandum (PPM) with SEBI through registered Merchant Bankers

SEBI vide its Circular no. SEBI/HO/IMD/IMD-I/DF6/P/CIR/2021/645 dated October 21,2021[1] have specified the Modalities for filing of placement memorandum through a Merchant Banker. Earlier on 13^th August 2021 SEBI made amendment in the AIF regulations[2] to mandate that Placement memorandum shall be filed with the SEBI through a merchant banker atleast thirty days prior to launch of scheme. SEBI further stated that the SEBI may communicate its comments, if any, to the merchant banker prior to launch of the scheme and the merchant banker shall ensure that the comments are incorporated in the placement memorandum prior to launch of the scheme. The provision for filing of Placement Memorandum through Merchant Banker shall come into effect from November 11, 2021.

SEBI now vide its circular dated October 21,2021 have prescribed the modalities for filing of placement memorandum through a Merchant Banker as follows:

1. The Merchant Banker shall independently exercise due diligence of all the disclosures in the placement memorandum, satisfy itself with respect to veracity and adequacy of the disclosures and provide a due diligence certificate in the prescribed format.
2. While filing draft placement memorandum at the time of registration or prior to launch of new scheme on the SEBI intermediary portal, the due diligence certificate provided by the Merchant Banker shall also be submitted, along with other necessary documents.
3. The details of the Merchant Banker shall be disclosed in the placement memorandum.
4. AIFs are required to intimate SEBI regarding any changes in terms of placement memorandum on a consolidated basis, within one month of the end of each financial year. Such intimation shall also be submitted through a Merchant Banker, along with the due diligence certificate provided by the Merchant Banker. The format of due diligence certificate for intimating the changes in the placement memorandum has been prescribed by the SEBI in the circular.

The circular also species that the Merchant Banker appointed for filing of placement memorandum shall not be an associate of the AIF, its sponsor, manager or trustee.

Adding an extra layer to this regulatory process is intended to boost investor protection, bringing the process of private placement by an AIF closer to that of public issue of shares by companies, where merchant bankers play a crucial intermediary role. Accordingly, the addition of another player to the private placement process is expected to ensure closer scrutiny of the private placement memorandum filed with SEBI by merchant bankers.

However, this change raises questions about time lags and increased compliance costs that fund managers may expect before they are able to launch their schemes, and the overall impact that this change could have on ease of doing business in India.