SEBI PERMITS OVERSEAS INVESTMENTS BY AIFS & VCFS, CLARIFIES OTHER ISSUES
In progression to the consultative paper dated April 24, 2015 on overseas investment byVCFs and AIFs, SEBI on October 1, 2015 gifted AIF industry the long pending and most awaited guidelines dealing with overseas investment and other issues/clarifications for AIFs/VCFs.The guidelines has been issued vide circular no. CIR/MD/DF/7/2015 and is issued in consonance with the legal regime framed by the Reserve Bank of India in this regard.
Apart from regulating the overseas investments by the privately pooled investment vehicles, the three dimensional circular further brings clarity with respect to some other general though crucial aspects of AIFs.
For a swift insight of the SEBI circular, let’s have a quick glance on the below-mentioned:
(I). Brief background of overseas investment by VCFs and AIFs:
Registered VCFs were permitted long back in year 2006 by SEBI to invest in securities of foreign companies subject to condition or guidelines stipulated or issued by the Reserve Bank of India (RBI) and SEBI. However, norms bringing the overseas investments into mainstream were brought down by the RBI in 2007 through its A.P. (DIR Series) Circular No. 49 and 50 dated April 30, 2007 and May 04, 2007 permitting SEBI registered VCFs to invest in equity and equity linked instruments of off-shore Venture Capital Undertakings (VCU) having Indian Connection , subject to overall limit of US$ 500 million. Simultaneously, SEBI vide its circular no. SEBI/VCF/Cir no. 1/98645/2007 dated August 09, 2007further laid guidelines and process thereby allowing VCFs to invest in offshore (foreign) VCUs having an Indian connection* upto 10% of its investible funds.
(*VCU having an Indian Connection means “VCU which has a front office overseas, while back office operation in Indiaâ€. )
The promulgation of AIF Regulations 2012 and also the subsequently amended Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 also permitted all categories of AIFs to make overseas investment in offshore VCU having Indian connection subject to such conditions or guidelines that may be stipulated or issued by the RBI and the SEBI from time to time.
That after waiting for almost 2 years, RBI during December 2014 has issued A.P DIR Series Circular no. 48 specifying that the overseas investment by AIFs to be made in accordance with Circular No. 49 and 50 (as already mentioned-above). Though, in absence of specific SEBI guidelines, the clarity with respect to overseas investments was missing and with the present circular, SEBI has clarified and provided necessary parameters to encourage overseas Investments.
(II). What does the SEBI’s new circular provides in the nutshell:
SEBI’s has manifested the much demanded changes vide its circular dated October 01, 2015 highlights of which are as following:
- A. For VCFs Registered under VCF regulations:
- The limit of investment upto 10% into the offshore VCU having Indian connection has been raised upto 25%.
- B. Overseas Investments by AIFs registered under AIF Regulations:
- AIFs can invest in equity and equity linked instruments of the offshore VCUs having Indian connection subject to over all limit of US$ 500 million;
- Overseas investments by AIF can be made in a foreign company whose shares are not listed on any of the recognized stock exchange in India or abroad;