Mumbai Securities and Exchange Board of India (SEBI) has relaxed two norms governing foreign investment of Indian private equity (PE) and venture capital (VC) funds, thus expanding the scope of capital that can be Investments can be made abroad.
First, it has allowed Indian private equity and venture capital funds to invest in foreign companies even if they do not have Indian links, according to a filing.
Till now, PE or VC funds under SEBI’s Alternative Investment Fund (AIF) regime could invest only in foreign companies that had Indian exposure through a subsidiary, following a circular issued on October 5, 2015. This requirement has been removed. Circular issued on 17th August
Second, SEBI has stated that the principal proceeds from the sale of foreign securities held by Indian AIFs will become available for reinvestment to all AIFs. Indian AIFs could collectively invest only $1.5 billion in foreign entities, which was also limited to 25% of the individual fund’s corpus. As VCircle reported on July 8, the limit was breached last month, sparking outrage in the AIF community. However, the Reserve Bank of India (RBI) has been reluctant to raise the cap to protect the rupee from depreciation.
However, by allowing reinvestment, the funds should be used over and above the $1.5 billion limit mandated by the RBI. If a fund invests $10 million in a startup overseas that it has dropped, $10 million is available for re-use.
“Recycling of the principal invested abroad will increase the longevity of the allowance in the overall allowance. These steps by SEBI will make Indian AIFs more attractive to investors and will boost the growth of the AIF industry.”
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