IndiaCorpLaw

Secondary Market Purchases by Foreign Venture Capital Investors

The Reserve Bank of India (RBI) has issued a circular that expands the scope of investments that foreign venture capital investors (FVCIs) can make in Indian companies. Hitherto, FVCI investments were permitted either through initial public offerings or through private placements. Under the new regime, FVCIs may acquire shares in the secondary markets from existing shareholders. The operative portion of the RBI circular reads as follows:

It has now been decided, to allow FVCIs to invest in the eligible securities (equity, equity linked instruments, debt, debt instruments, debentures of an [Indian Venture Capital Undertaking] or [Venture Capital Fund (VCF)], units of schemes / funds set up by  a VCF) by way of private arrangement / purchase from a third party also, subject to terms and conditions as stipulated in Schedule 6 of Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to time. It is also being clarified that SEBI registered FVCIs would also be allowed to invest in securities on a recognized stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000, as amended from time to time, as well as the terms and conditions stipulated therein.

This appears to be aimed at deepening the markets by providing greater avenues for investments in the growth sectors, a theme that is also highlighted in some of the proposals in the Budget announced last week (such as expansion of external commercial borrowings in the infrastructure sector, allowing qualified foreign institutional investors to invest in the bond markets, etc.).

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