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After receiving feedback from various stakeholders, the Securities and Exchange Board of India on Friday proposed to allow venture capital funds to invest up to 25 per cent of their investible funds in foreign companies that having ‘Indian connection’. Currently, the cap is fixed at 10 per cent.
Need for enhancing limitIndian connection would include companies having a front office overseas, but back office operations in India.
Many Indian entrepreneurs have been setting up their headquarters outside India with back-end or research and development operations in India. “Therefore, there is a need to allow higher overseas investment by VCs more than existing 10 per cent limit,” SEBI said.
Representatives are of the view that such investments would provide opportunities to the funds to generate better returns globally, getting exposure to the international markets practices, etc.
Indirect benefitsIndustry stakeholders also expect such investments to generate indirect benefits to India through bringing in of non-debt creating foreign capital resources, technology upgradation, skill enhancement, new employment, etc.
For AIFs, though there is no investment limit currently on their investment in securities of companies incorporated outside India, their investments will be subject to conditions of the RBI or SEBI from time to time.
According to SEBI’s new guidelines, AIFs need not seek a separate approval from RBI hereafter.
They may be allowed to invest in equity and equity-linked instruments of offshore venture capital undertakings (VCUs) with Indian connection, subject to an overall limit of $500 million (combined limit for AIFs and VC funds registered with SEBI).
According to the proposal, the allocation of investment limits would be done on ‘first-come-first served’ basis, depending on the availability in the overall limit of $500 million.
An offshore VCU is a foreign company whose shares are not listed on any of the recognised stock exchange in India or abroad.
“The tenure of any scheme of the AIF shall be calculated from the date of final closing of the scheme,” SEBI said in its proposal.
Market regulator has sought public comments on the proposals by May 7.
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