Sebi eases start-up funding norms, bars PE-promoter side deals

To further boost securities market, Sebi today relaxed funding rules for start-ups and allowed foreign investment in unlisted corporate bonds while it barred private equity funds and promoters of listed firms from entering into side deals for profit sharing.
Putting in place a stringent framework to protect minority investors' interests, the watchdog decided to stop listed companies and their top executives from striking compensation pacts with private equity funds without approval from their respective boards and public shareholders.
The latest raft of measures, cleared by the Sebi board at a meeting here today, comes amid larger efforts to attract more investors as well as deepen the capital market, which is seen having very high growth potential.

Continuing efforts to bolster the nascent start-up ecosystem, the Securities and Exchange Board of India (Sebi) has eased the rules for investments by angel funds in such entities and they can now invest in firms that are up to five years old, as against three years currently.
Further, the lock-in period for angel funds has been reduced to one year from three years while their minimum investment threshold has been cut to Rs 25 lakh from Rs 50 lakh. The move is expected to help start-ups that are in need of funds in the initial stage of idea generations.
The upper limit for number of angel investors in a scheme will be increased to 200 from 49.

In another measure to attract more overseas money, the regulator has decided to permit FPIs (foreign portfolio investors) to invest in unlisted corporate debt securities and securitised debt instruments with Rs 35,000 crore ceiling.

Total FPI investment in corporate bonds currently stands at over Rs 1.72 lakh crore, which is more than 70 per cent of the overall ceiling for all kinds of corporate bonds at over Rs 2.44 lakh crore.
FPIs will be allowed to invest in the unlisted corporate debt securities in the form of non-convertible debentures (NCDs) or bonds issued by an Indian public or private company.

Clamping down on secret profit-sharing agreements between private equity funds and promoters of listed firms, Sebi has restrained them from entering into any such pact without prior approval of the board and public shareholders.
The restrictions will also apply to employees, including key managerial personnel and directors of listed companies, for themselves and on behalf of any other person.