Sebi tightens overseas norms for alternative investment and VC funds

The Securities and Exchange Board of India (Sebi) has tightened overseas investment norms for alternative investment funds (AIFs) and venture capital funds (VCFs). Going ahead, all AIFs and VCFs will have to file an application before the market regulator for allocation of overseas investment limit in a format specified by Sebi.

Also, such funds will only be permitted to invest in an overseas company incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding. Alternatively, the regulator can also be a signatory to the bilateral Memorandum of Understanding with Sebi. Further, investments in companies based out of jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies have been barred.

“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,” Sebi has said.

AIFs/VCFs have also been directed to furnish the sale details of the overseas investments within three working days of the divestment. Also, the overseas investments divested till date by such funds have to be disclosed to Sebi within 30 days. Legal experts say Sebi’s latest diktat will bring in more checks and balances when it comes to investing in overseas securities.

Currently, the AIF industry is allowed to invest a maximum of $1.5 billion overseas. The limit is close to being fully utilised. At the end of June, the investment commitments received by the AIF industry stood at Rs  6.94 trillion, while the funds raised and investments made stood at Rs 3.39 trillion and Rs 3.11 trillion, respectively.