Investors welcome dropping of ‘India connect’ on overseas investment, look forward to re-opening of ODI limit

Markets regulator, Securities and Exchange Board of India (SEBI) has eased some norms governing overseas investments by Indian private equity and venture capital funds. This decision has widened the scope of the capital that can be invested in foreign shores.

The SEBI circular dated August 17 states that desi PE-VC funds are permitted to invest in foreign companies sans an Indian connect. Since October 2015, Indian PE-VC could invest in overseas companies that had an Indian subsidiary.

“We are pleased to see that SEBI is lending a kind ear to the industry’s requests for more flexibility in a very dynamic global environment. ODI for domestic Venture Capital funds has become an important need, to help Indian entrepreneurs compete with the best in the world,” said Karthik Reddy, Chairperson, Indian Venture and Alternate Capital Association (IVCA) & Co-founder and Managing Partner, Blume Ventures.

The PE-VC industry is also awaiting an announcement to reopen the ODI limit. “We are eagerly looking forward to SEBI’s request to RBI being approved, to reopen the ODI limit. We are also hoping to see AIFs be allowed to utilize their ODI limits under automatic route, similar to MFs,” Reddy said.

SEBI has also allowed that principal proceeds from the sale of an overseas security held by an Indian Alternative Investment Fund shall become available to all AIFs for re-investment.

“The recycling of the principal invested overseas into the overall allowance will extend the longevity of said allowance. These moves by SEBI will make Indian AIFs more attractive to investors, global and Indian, and will further fuel the growth of the AIF industry,” said Siddarth Pai, Co-Chair – Regulatory Affairs Committee, IVCA & Founding Partner, 3one4 Capital.

At present, Indian AIFs together can invest only $1.5 billion in foreign companies. Each fund has an investment cap of 25 per cent of their corpus as allowed by SEBI. This cap, though breached in July, has not yet been revised by the central bank, Reserve Bank of India (RBI) due to concerns around the Rupee.

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