Sebi tightens promoter-investor profit sharing rules

MUMBAI: Securities and Exchange Board of India has tightened corporate governance rules on profit-sharing deals between promoters of companies and investors such as private equity funds.

The capital market regulator, in a board meeting on Wednesday, also eased minimum investment requirement for angel funds and allowed foreign investors to invest in unlisted non-convertible debentures (NCDs)and securitised debt instruments.

ET had first reported on November 14 that Sebi will announce these measures in its board meeting on November 23.

The regulator said company promoters or management wanting to enter into agreements with investors or a third party can do so only after getting the permission of the board and shareholders.

“All such agreements entered during the past three years from the date of notification shall be informed to the stock exchanges for public dissemination including those which may not be currently valid,” said Sebi, in a press release after the board meeting.

Existing agreements, which are still valid, also need to be informed to the stock exchanges and “interested persons” in such deals will not be allowed to vote on such resolutions, it said.

Angel Funds
Sebi cut the minimum investment requirement by angel funds in a venture to Rs 25 lakh from Rs 50 lakh and reduced the lock-in period to one year from three years. The cap on the number of angel investors in a scheme has been raised to 200 from 49.

Aligning the definition of start-ups for angel fund investments to that of Department Of Industrial Policy & Promotion (DIPP), Sebi has allowed these funds to invest in start-ups incorporated within five years. Earlier, these funds could not invest in start-ups incorporated after three years.

The regulator has also allowed angel funds to invest in overseas venture capital undertakings up to 25% of their investible corpus.

These decisions are based on recommendations of a committee on Alternative Investment Funds (AIFs), headed by Infosys founder NR Narayana Murthy.

Unlisted NCDs and securitised debt instruments

Sebi has allowed foreign portfolio investors (FPIs) to invest in unlisted NCDs or bonds of an Indian company.

“Investments in the unlisted corporate debt securities shall subject to minimum residual maturity of three years and end use-restriction on investment in real estate business, capital market and purchase of land," the regulator said.

Till now, FPI investment in unlisted debt securities was permitted only in infrastructure companies. Also, investment by FPIs in securitised debt instruments was not allowed.

Sebi said FPI investments in unlisted corporate debt securities and securitised debt instruments shall not exceed Rs35,000 crore. Their investments in securitised debt instruments shall not be subject to the minimum 3-year residual maturity requirement, it said.