The Securities and Exchange Board of India (“SEBI”) had published a circular entitled “Guidelines for overseas investment by Alternative Investment Funds (“AIFs”)/ Venture Capital Funds (“VCFs”)”, dated August 17, 2022 addressing Alternative Investment Funds/ Venture Capital Funds (registered under the erstwhile SEBI (Venture Capital Funds) Regulations, 1996) (“Circular”). Under the new Circular, AIFs/ VCFs will be permitted to invest in an overseas investee company incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding or a signatory to the bilateral Memorandum of Understanding with SEBI. It further provides that if an AIF/VCF liquidate their investment in an overseas investee company previously, then, 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 for reinvestment.
guidelines for overseas investment by aifs
The abovementioned changes that have been introduced in the Circular will not change the provision that AIFs and VCFs shall not invest in an oversees investee entity which is incorporated or registered in a country identified by the Financial Action Task Force as a country which has strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply. Further, AIFs and VCFs are not allowed to make an investment in an oversees investee entity which is incorporated or registered in a country that has not sufficiently addressed the deficiencies in relation to the aforementioned concern areas or have not implemented the action plan that has been created in consultation with the Financial Action Task Force to address the deficiencies.
Prior to the Circular, AIFs/ VCFs were permitted to make investments in equity/ equity linked instruments of offshore undertakings, subject to taking prior case by case approval of SEBI for each such investment. Such approval is granted by SEBI to AIFs/ VCFs on a first come first serve basis, within an overall limit of USD 1,500 million. The updated Circular only removes the “India connection” link and makes a relaxation which allows domestic funds to explore opportunities for investments in offshore companies with absolute overseas operations without requiring an Indian connection and permits reinvestment of funds from sale proceeds by AIFs/ VCFs to the extent of the original investment.
