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On 17th August 2022, vide circular number SEBI/HO/AFD-1/PoD/CIR/P/2022/108, a Circular was issued by the Securities and Exchange Board of India (SEBI) wherein SEBI issued guidelines on the overseas investment by AIFs and VCFs. SEBI, through these guidelines, has allowed the Alternative Investment Funds (AIFs) to invest in securities of companies that are incorporated outside India. Additionally, the Venture Capital Funds (VCFs) have been allowed to make investments in offshore venture capital undertakings provided such AIFs and VCFs comply with the following conditions.
Table of Contents
The Circular on the “Guidelines for overseas investments by AIFs and VCFs” is applicable to the following entities:
The Circular makes it necessary for the AIFs and VCFs to file an application with SEBI for the allocation of overseas investment limits. The format of the application has been provided in Annexure A of the Circular.
Earlier, there was a requirement that an overseas investee company need to have an Indian connection. This requirement has been done away with via this Circular.
The AIFs and VCFs have been permitted to invest only in those overseas investment companies that have been incorporated in a country whose securities market regulator is a signatory to
The Circular has clarified that AIFs and VCFs cannot invest in an overseas investment company that has been incorporated in a country identified in the public statements made by the Financial Action Task Force (FATF) as:
Where an AIF or VCF had previously liquidated investment in an overseas investee company, the sale proceeds derived from such liquidation shall be available for reinvestment in the said overseas company to all the AIFs and VCFs (including the selling AIF and VCF). It must be noted that the sale proceeds shall be available to the extent of the investment made in the Overseas Investee Company.
The Circular prescribes that the AIFs and VCFs can transfer/sell the investment made in the Overseas Investee Company only to those entities that are eligible to make overseas investments as per the prevailing guidelines issued under the Foreign Exchange Management Act, 1999.
The Circular makes it mandatory that the AIFs and VCFs furnish the details of the sale/transfers made by the AIFs and VCFs with SEBI within a period of 3 working days of such divestment. The information must be furnished in the prescribed format given in Annexure B of the Circular. The details will be shared by emailing on aifreporting@sebi.gov.inin order to update the overall limit available for overseas investment by AIF and VCF.
The Circular has also asked the AIFs and VCFs to report all the overseas investments divested/sold by them to SEBI within a period of 30 days from the date of this circular. These details will be shared in the format prescribed under Annexure B by emailing to aifreporting@sebi.gov.in.
The Circular states that the Board/Trustee/Designated Partners of the VCFs and AIFs will be required to submit the undertaking to SEBI about the proposed overseas investment. Such undertaking will be submitted in the prescribed format prescribed in Annexure A.
The directions in this Circular shall come into effect immediately, i.e. from 17th August 2022 only, and all the AIFs and VCFs need to comply with the above-mentioned conditions with immediate effect.
This Circular on the conditions on overseas investment by AIFs and VCFs has been issued with the approval of the competent authority and has been brought after exercising the powers conferred on the SEBI under sub-section 1 of section 11 of the SEBI Act, 1992 with an intent to promote the development and regulate the securities market and also to protect the interests of the investors in the securities market.
Read our Article: Asset Management: Alternative Investment Funds
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