After a long waiting period of over four years, foreign venture capital investors (FVCIs) have seen the light of day with 129 such applications getting regulatory clearances in the last four months. Based on the intention for investment as mentioned in their applications, collectively these funds are estimated to have the potential to invest $10 billion in Indian companies.
The Securities and Exchange Board of India (Sebi) had amended the regulations for foreign venture capital funds and investors in April 2004, and since then several applications were filed with the market regulator. However, the Reserve Bank of India (RBI) then did not give necessary clearance as there was a huge foreign capital inflow into the country, making it difficult to manage those funds.
With the situation now being just the reverse, the RBI has started giving clearances and in last four months, a total of 129 such investors have been given the green light.RBI pricing norms related to foreign direct investment (FDI) are not applicable to FVCIs, and if their investment is for more than a year, then the post-IPO lock-in is not applied to them. These terms make it attractive to float FVCIs.
Most of the FVCIs cleared by Sebi are registered in Mauritius. The list includes entities floated by Carlyle, General Atlantic, WestBridge, Ascendas, New York Life, Standard Chartered PE, Citigroup and Blackstone among others. There have also been many FVCIs floated by Indian companies. These include IDFC PE and JM Financial.However, while approving these applications, the RBI has restricted their investments to nine sectors, including infrastructure, IT hardware, agriculture and poultry.
A consultant for many FVCIs said at the time of making applications for clearance, there were no such conditions or restrictions. However, many FVCIs were still pursuing their plans, hoping that the regulators would be flexible in coming months, the consultant said on condition of anonymity.
He, however, added that some funds found this limited sector investment condition against their strategy and hence were making representations to the regulators to relax the curbs.
The restrictions relating to investing only in nine sectors is based on the benefits available under Section 10(23) fb of the Income Tax Act, which allows tax pass-through to venture funds.“These restrictions (of investing only in nine sectors) on foreign venture capital investment should not be there and even the benefit of tax pass-through (where ultimate tax to be paid by investors and not the funds that invest money on behalf of them) should be extended to all sectors,” said Indian Venture Capital Association Chairman Saurabh Srivastava.