BackSebi tweaks investment norms
The new guidelines state that AIFs or VCFs will be allowed to invest in an overseas investee company
PremiumMUMBAI : The Securities and Exchange Board of India (Sebi) has relaxed two norms governing overseas investments of Indian private equity (PE) and venture capital (VC) funds, thus expanding the scope of the capital that can be invested abroad.
First, it has allowed Indian private equity and venture capital funds to invest in overseas companies even if they do not have an Indian connect, according to a filing.
Till now, PE or VC funds under Sebi’s alternative investment funds (AIFs) regime could only invest in overseas companies that had an Indian connect by way of a subsidiary, following a circular issued on 5 October 2015. That requirement has been done away with through a circular issued on August 17.
Second, Sebi has said the principal proceeds from the sale of an overseas security held by an Indian AIF shall become available to all AIFs for re-investment. Indian AIFs can collectively only invest $1.5 billion in overseas entities, which was also capped at 25% of the individual fund’s corpus. This cap was breached last month, causing angst within the AIF community, as VCCircle reported on 8 July. However, the Reserve Bank of India (RBI) has been reluctant to raise the cap to avoid weakening the rupee.
However, by allowing reinvestments, funds be used more from the allowed $1.5 billion limit, as mandated by the RBI. If a fund invested $10 million overseas in a startup that it has exited, the $10 million is available for use again.
“The recycling of principal invested overseas into the overall allowance will extend the longevity of the allowance. These moves by Sebi will make Indian AIFs more attractive to investors and will fuel the growth of the AIF industry," said Siddarth Pai, co-chair, regulatory affairs committee, IVCA, and founding partner, 3one4 Capital.
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