Guidelines on overseas investments and other issues/clarifications for AIFs/VCFs
Summary
This circular modifies investment limits for Venture Capital Funds and Alternative Investment Funds regarding overseas investments in Offshore Venture Capital Undertakings. It establishes a combined USD 500 million limit for such investments, capped at 25% of the respective fund's investible funds. The document also clarifies procedural requirements, including prior SEBI approval and adherence to FEMA regulations.
Text
VCFs are, from the date of this circular, permitted to invest in Offshore Venture Capital Undertakings which have an Indian connection upto 25% of the investible funds of the VCF.
VCFs shall not invest in Joint venture/Wholly Owned Subsidiary while making overseas investments.
VCFs shall adhere to FEMA Regulations and other guidelines specified by RBI from time to time with respect to any structure which involves Foreign Direct Investment (FDI) under Overseas Direct Investment (ODI) route.
VCFs shall comply with all requirements under RBI guidelines on opening of branches/subsidiaries/Joint venture/undertaking investment abroad by NBFCs, where more than 50% of the funds of the VCF has been contributed by a single NBFC.
The VCFs desirous of making investments in offshore venture capital undertakings shall submit their proposal for investment (in the attached format at Annexure) to SEBI for its prior approval.
AIFs may invest in equity and equity linked instruments only of off-shore venture capital undertakings, subject to overall limit of USD 500 million (combined limit for AIFs and Venture Capital Funds registered under the SEBI (Venture Capital Funds) Regulations, 1996).
AIFs desirous of making investments in offshore venture capital undertakings shall submit their proposal for investment (in the attached format at Annexure) to SEBI for prior approval. It is clarified that no separate permission from RBI is necessary in this regard.
For the purpose of such investment, it is clarified that “Offshore Venture Capital Undertakings” means a foreign company whose shares are not listed on any of the recognized stock exchange in India or abroad.
Investments would be made only in those companies which have an Indian connection (e.g. company which has a front office overseas, while back office operations are in India).
Such investments shall not exceed 25% of the investible funds of the scheme of the AIF.
The allocation of investment limits would be done on ‘first come- first serve’ basis, depending on the availability in the overall limit of USD 500 million.
In case an AIF who is allocated certain investment limit, wishes to apply for allocation of further investment limit, the fresh application shall be dealt with on the basis of the date of its receipt and no preference shall be granted to it in fresh allocation of investment limit.
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Source: SecMarx — Guidelines on overseas investments and other issues/clarifications for AIFs/VCFs. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.