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SEBI eases norms for angel funds, tightens disclosure rules for PIPE deals

25 November, 2016

The Securities and Exchange Board of India on Wednesday eased rules for angel investments in startups following a recommendation from a panel of experts chaired by Infosys co-founder NR Narayana Murthy.

The capital markets regulator also tightened disclosure norms for private investments in public equities, or PIPE deals, to protect minority shareholders’ interest, it said in a statement after a board meeting.

SEBI increased the upper limit for the number of angel investors in a scheme to 200 from 49, halved the minimum investment threshold to Rs 25 lakh and allowed investors to put money in firms that are up to five years old compared with three years currently.

The regulator also reduced the lock-in period for angel funds to one year from three years and allowed such investors to park 25% of their funds in overseas startups, in line with other alternative investment funds.

The steps will not only help Indian startups garner funds but will also encourage Indian angel investors to look for investment opportunities outside the country. The SEBI move comes at a time when startups in India have been facing a funding crunch and angel investors, who many a time bring the first funding cheque for a startup, also turning cautious.

Angel and seed investments dived to this year’s lowest in September, both in terms of value and volume, before rebounding in October.

These steps will boost angel investment in startups and greatly help startup founders looking for small-volume funding, said Nishit Dhruva, managing partner at law firm MDP & Partners (Advocates & Solicitors).

PIPE deals

The regulator barred listed companies and their founders and top executives from sealing compensation pacts or profit-sharing deals with private equity firms without approval from their boards and public shareholders.

The move is in line with draft guidelines issued in September when it had raised concern over such “unfair practices”.

SEBI also said that all such agreements entered during the past three years must be informed to the stock exchanges for public dissemination including those which may not be currently valid. Existing pacts that may continue to be valid must be informed to the stock exchanges and approval must be obtained from public shareholders, it said.

Foreign investment in unlisted corporate bonds

In an attempt to deepen capital markets, the regulator amended regulations to allow foreign portfolio investors (FPIs) to invest in unlisted non-convertible debentures and securitised debt instruments.

At present, investment in unlisted debt securities is permitted only in the case of companies in the infrastructure sector. Investment by FPIs in securitised debt instruments is currently not permitted.

As per the new norms, FPIs can invest in unlisted corporate debt securities issued by an Indian public or private company subject to the government’s guidelines. These debt instruments will be subject to a minimum residual maturity of three years and end-use restriction on investment in real estate, capital market and purchase of land.

The investors will also be able to invest in securitised debt instruments, including those issued by a special purpose vehicle set up for securitisation of assets with banks, financial institutions or non-banking finance companies.

However, total investment by FPIs in unlisted corporate debt securities and securitised debt instruments cannot exceed Rs 35,000 crore within the investment limits prescribed for corporate bonds, which currently is Rs 2,44,323 cr, SEBI said.

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SEBI eases norms for angel funds, tightens disclosure rules for PIPE deals

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