In an important development, SEBI has issued guidelines for investment in overseas companies by alternative investment funds (AIF) / venture capital funds (VCF).
Pursuant to the erstwhile SEBI (Venture Capital Funds) Regulations 1996 and the present SEBI (Alternative Investment Funds) Regulations, 2012, AIF/ VCF are permitted to invest in securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the RBI and SEBI from time to time. In this regard, SEBI has issued guidelines laying down the following key aspects:
Summary of key requirements:
|Application for allocation of overseas investment limit||AIFs/VCFs shall file an application to SEBI for allocation of overseas investment limit inter alia containing the following details:
– Manager has exercised due diligence with respect to the investment decision
– Proposed investment is an equity/equity linked investment
– Overseas investee company is a foreign company whose shares are not listed on any recognized stock exchange in India or abroad.
– AIF/VCF will not invest in a joint venture/ wholly owned subsidiary while making overseas investments.
– Adherence with Foreign Exchange Management Act, 1999 (FEMA) and regulations issued thereunder, and other guidelines specified by RBI in respect of overseas direct investment.
|No requirement for overseas investee company to have an Indian Connection||The requirement of the overseas investee company to have an Indian Connection, as specified in previous SEBI circulars dated August 9, 2007 (available here) and circular dated October 1, 2015 (available here), has been done away with.|
|Restriction on investment in overseas investee company incorporated in certain countries||
– a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or
– a signatory to the bilateral Memorandum of Understanding with SEBI.
– a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
– a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with FATF to address the deficiencies.
|Liquidation of investments made in overseas investee company||If an AIF/VCF liquidates investment made in an overseas investee company previously, the sale proceeds received from such liquidation, to the extent of investment made in the said overseas investee company, shall be available to all AIFs/VCFs (including the selling AIF/VCF) for reinvestment.|
|Sale/transfer of investment in overseas investee company||AIFs/VCFs to transfer/sell the investment in overseas investee company only to the entities eligible to make overseas investments, as per the extant guidelines issued under FEMA.|
|Furnishing of details of sale/ disinvestment||AIFs/VCFs to furnish the sale/divestment details of the overseas investments to SEBI in the prescribed format within 3 working days of the divestment for updating the overall limit available for overseas investment by AIFs/VCFs.
All the overseas investments sold/divested by AIFs/VCFs till date, shall also be reported to SEBI in the prescribed format within 30 days from the date of the circular.
The above guidelines have been issued vide SEBI circular date August 17, 2022 (available here).
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