The Securities and Exchange Board of India (SEBI) has tightened corporate governance rules on profit-sharing between promoters of companies and investors such as private equity funds.
The capital market regulator barred listed firms and their top officials from signing compensation pacts with PE funds without public shareholders' approval.
PE Funds “All such agreements entered during the past three years from the date of notification shall be informed to the stock exchanges for public dissemination including those which may not be currently valid,” said Sebi, in a press release after the board meeting.
Existing agreements, which are still valid, also need to be informed to the stock exchanges and “interested persons” in such deals will not be allowed to vote on such resolutions, it added.
Secondly, it also eased minimum investment requirement for angel fund, allowing foreign investors to invest in unlisted non-convertible debenture (NCDs) and securitized debt instruments.
Angel Funds Sebi cut down the minimum investment requirement by angel funds in a venture to Rs.25 lakh from Rs.50 lakh and reduced the lock-in period to one year from three years. The cap on the number of angel investors in a scheme has been raised to 200 from 49.
The good news for start-ups comes from the Sebi as the definition of startup for angel fund investments be similar to definition given by the Department of Industrial Policy and Promotion (DIPP).
Sebi cleared that angel funds investors will be allowed to invest in start-ups incorporated within five years, which was earlier 3 years. And further the regulator also allowed angel funds to invest in overseas venture capital undertakings up to 25% of their investible corpus.
These decisions are based on recommendations of a committee on Alternative Investment Funds (AIFs), headed by Infosys BSE 1.69 % founder NR Narayana Murthy.
Foreign Portfolio Investors Sebi has allowed foreign portfolio investors (FPIs) to invest in unlisted NCDs or bonds of an Indian company. It said, “Investments in the unlisted corporate debt securities shall subject to minimum residual maturity of three years and end use-restriction on investment in real estate business, capital market and purchase of land."
Up till now, FPI investment in unlisted debt securities was permitted only in infrastructure companies. Also, investment by FPIs in securitized debt instruments was not allowed.
Sebi has now reformed the rule and stated, “FPI investments in unlisted corporate debt securities and securitized debt instruments shall not exceed Rs35,000 crore. Their investments in securitized debt instruments shall not be subject to the minimum 3-year residual maturity requirement.”