Sebi may allow FPIs to invest in unlisted NCDs

With an aim to deepen capital markets, regulator Sebi may consider allowing foreign portfolio investors (FPIs) to invest in unlisted non-convertible debentures and securitised debt instruments in its board meeting on Wednesday.

In a slew of proposed reform measures, the regulator also plans to tighten corporate governance rules on profit-sharing agreements between promoters and private equity funds as part of its efforts to safeguard minority shareholders in markets.

Sebi also plans to reduce minimum angel fund investment for venture capital firms to Rs 25 lakh from the current Rs 50 lakh to boost the early-stage startup ecosystem.

The regulator may allow the angel funds to make overseas investments up to 25 per cent of their investible corpus, in line with other alternative investment funds. The move will make such funds to spread their risk by investing across geographies.

These proposals are likely to be discussed in the board meeting of the Securities and Exchange Board of India (Sebi) on Wednesday, sources said.

The regulator plans to allow FPIs to invest in unlisted non-convertible debentures and securities debt instruments. RBI has also recently relaxed its rules for allowing such investments by FPIs.

The move comes after Sebi's board, in September, allowed well-regulated FPIs to directly trade in corporate bonds, without going through any broker or any other intermediary.

Prior to that, FPIs could trade in Indian markets only through brokers (registered with exchanges as their members).

The move is aimed at boosting foreign inflows in Indian markets and deepening and widening the corporate bond market.

Sebi is planning to make it mandatory for promoters and top executives of firms entering into special profit-sharing deals with private equity funds to obtain prior approval from the company's board and shareholders. It plans to add a provision to listing agreement that will require disclosures and prior approval of shareholders.

In case of existing profit sharing agreements, such agreements would need to be informed to the stock exchanges for public dissemination.

Also, Sebi plans to align its definition of startups with other regulations. As per Sebi guidelines, angel funds can invest in startups that have been incorporated during the preceding three years from the date of such investments. This may be changed to five years.

Investment by an angel fund in a venture capital is locked in for three years. This is likely to be changed to one year. There are plans to amend the upper limit of the number of angel investors in a scheme to 200 from the current 49.

Angel funds, a sub-category of AIF, encourages entrepreneurship in the country by financing startups at a stage where such firms find it difficult to get capital from banks and financial institutions. Currently, 266 AIFs are registered with Sebi. Of which, 85 are registered as angel funds.