Foreign VCs can now invest in unlisted firms sans RBI nod

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Foreign venture capital entities can now invest in unlisted Indian companies without Reserve Bank of India approval.

The venture capital firm will, however, have to be registered with market regulator SEBI. The investment can be made in an Indian company in 10 specific sectors or in any start-up.

The central bank on Thursday amended the regulations governing foreign venture capital investors (FVCI) in order to further liberalise and rationalise the investment regime and to give a fillip to foreign investment in start-ups.

According to the RBI, the 10 sectors in which SEBI-registered FVCIs can invest without its nod are: biotechnology, IT, nanotechnology, seed research and development, discovery of new chemical entities in pharmaceutical sector, dairy industry, poultry industry, production of bio-fuels, hotel-cum-convention centres with over 3,000 seating capacity, and infrastructure sector. FVCIs can also invest in equity, equity-linked instruments or debt instruments issued by an Indian ‘start-up’ irrespective of the sector in which it is engaged. The RBI said a start-up will mean an entity (private limited company, registered partnership firm or a limited liability partnership) incorporated or registered in India not prior to five years, with an annual turnover not exceeding Rs. 25 crore in any preceding financial year.

These start-ups should be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property and satisfying certain conditions as given in the Foreign Exchange Management Regulations, 2016.

The RBI also said FVCIs can invest in units of a venture capital fund (VCF) or a Category-I alternative investment fund (AIF) or units of a scheme/fund set up by a VCF or by a Category-I AIF.

In a circular issued to banks authorised to deal in foreign exchange, the RBI said: “In order to further liberalise and rationalise the investment regime for FVCIs and to give a fillip to foreign investment in the start-ups, the extant regulatory provisions have been reviewed, in consultation with the Government of India.”

The consideration for all investments by an FVCI can be paid out of inward remittance from abroad through normal banking channels or out of sale/maturity proceeds of or income generated from investment already made. There will be no restriction on transfer of any security/instrument held by the FVCI to any person resident in or outside India.

Source: http://www.thehindubusinessline.com/todays-paper/foreign-vcs-can-now-invest-in-unlisted-firms-sans-rbi-nod/article9247432.ece

IPO fund-raising in India highest since 2011

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Fund raising through initial public offerings (IPOs) has crossed $2.9 billion in 2016 and another $2.9 billion is to be raised through these offerings this year, according to a research report by Baker & McKenzie.

Around 22 companies are waiting to tap the markets bringing the year-end estimated total deal value to $ 5.8 billion, more than double last year’s $2.18 billion from 71 listings, and also the highest since 2011, the report said.

The report further said that 16 companies are in the pipeline to be listed domestically in 2017, raising as much as $5.86 billion, including Vodafone’s highly anticipated $3 billion IPO, which could potentially surpass the state-run Coal India’s IPO in 2010 to become India’s biggest IPO.

The report said the momentum in India’s IPO market continues to build, boosted by the central government’s push to ease of doing business in India.

The report added that Goods & Services Tax (GST) Bill which will take effect on 1 April 2017 will have a positive effect on the market.

“The GST Bill will not only bring about the immediate benefit of widening the country’s tax base and improving the revenue productivity of domestic indirect taxes, but more importantly, it sends the message to the people of India and the rest of the world that the Indian government is committed to the country’s economic reform, further bolstering India’s attractiveness as an investment destination,” said Ashok Lalwani, head of Baker & McKenzie’s India Practice.

The report said dual listing on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India accounted for 98.8% of Indian companies’ listings by value in 2016 year to date, raising a total of $ 2.9 billion from 19 IPOs, including ICICI Prudential Life Insurance’s $909 million IPO, which is the country’s biggest IPO this year.

A total of 33 companies are expected to dual list on both the BSE and the NSE by the end of 2016, raising a total of $4.62 billion. Improved business confidence is also driving Indian companies to look at growth and market expansion opportunities overseas by way of cross-border IPOs, the report said.

Among the 22 IPOs in the 2016 pipeline is Strand Life Sciences’ listing on NASDAQ, which if it goes ahead, will be India’s first cross-border IPO since early 2015 when Videocon d2h got listed, the report added.

Source: http://www.financialexpress.com/industry/companies/ipo-fund-raising-in-india-highest-since-2011/415830/

Sebi deems share transfer by promoters by way of gift as sale

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Any inter-se transfer of shares by a promoter to his wife will be considered as sale even if it is in the form of a gift where no monetary transaction is involved, Sebi said.

According to guidelines, the promoters are not eligible for preferential allotment of shares or warrants if there has been any inter-se transfer of shares among promoter group firms in the last six months.
Giving its views on an application filed by KJMC Financial Services, the watchdog said that as envisaged in the Sebi ICDR (issue of capital and disclosure requirements) regulations, any transfer of shares in the form of gift will be considered as sale.
As per Sebi’s ICDR regulations, if any person belonging to the promoter or promoter group in the issuer company has sold his equity shares during the six months preceding the relevant date, such entity will be ineligible for allotment of specified securities on a preferential basis.
KJMC Financial Services had sought an interpretative letter from Sebi on whether transfer of shares by its promoter to his wife by way of gift will be considered as sale under the Sebi’s ICDR regulations.
“Our view is that the inter-se transfer by way of gift will be considered as sale as envisaged… in the Sebi ICDR regulations,” Sebi said, adding that its response is based on the information given in the company’s letter. Referring to the ICDR regulations, the regulator said: “The primary intention of the regulation was not with respect to consideration, but with change in ownership of equity shares.” It added: “Different facts or conditions might lead to a different result.

Further, this letter does not express a decision of the board on the questions referred.” The watchdog also said its views are expressed with respect to the clarification sought in terms of Sebi ICDR norms and is not applicable to any other Sebi regulations.

Source: http://www.moneycontrol.com/news/economy/sebi-deems-share-transfer-by-promoters-by-waygift-as-sale_7454721.html?utm_source=ref_article

 

FPI inflows top Rs. 20,000 cr in Sept, at 11-month high

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Foreign investors pumped in more than Rs. 20,000 crore into the capital market in September, making it the highest net inflow in 11 months.

This also marks the third consecutive month of positive inflows (equity and debt).

The trend is likely to continue in the coming weeks as regulator SEBI has decided to offer well-regulated foreign investors direct entry to invest in corporate bonds, say experts.

They attributed the latest flurry of capital to factors such as sound progress in roll-out of GST, better corporate earnings and the US Fed’s decision not to lift interest rates.

Sentiment turned better after the current account deficit (CAD) narrowed sharply to just $300 million, or 0.1 per cent of GDP, in the June quarter and domestic passenger vehicle sales grew for the 14th straight month in August, they added.

According to depositors’ data, net investment by FPIs stood at Rs. 10,443 crore in equities last month while the same for debt was Rs. 9,789 crore, taking the total inflow to Rs. 20,233 crore ($3 billion).

This was the highest net inflow in the capital markets since October 2015 when FPIs had infused Rs. 22,350 crore.

The latest inflow has taken the FPI investment tally in equities to Rs. 51,293 crore in 2016 while the same for the debt market stands at Rs. 2,441 crore, resulting in a net inflow of Rs. 53,734 crore.

Source: http://www.thehindubusinessline.com/economy/fpi-inflows-surpass-rs-20000-cr-in-sept-at-11month-high/article9176139.ece

Readying comexes to take on defaulters

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Lax risk management rules have been cited as one of the reasons that led to the NSEL debacle. It is, therefore, not surprising that the current commodity market regulator, the Securities and Exchange Board of India, is focusing on the risk management rules in the commodity exchanges. Early this month, it released a circular that tightened the rules for collecting trading margins on commodity derivative contracts and for contributions to the Trade Guarantee Fund (TGF).

Here, we take a closer look at the changes made to the manner in which the TGF is maintained by the exchanges.

As its name denotes, this fund is used to guarantee the settlement of all bona fide transactions of the members of the exchange. This is the corpus that is used to protect the interest of investors, if there is a large default, thus acting as the primary means of building confidence of investors towards the exchange.

Guaranteeing performance

The TGF is built through various components: a) yearly contribution of the exchanges. This was typically 5 per cent of the gross revenue every year. b) The security deposit paid by members to the exchanges, which is also called the Base Minimum Capital (BMC), c) all the penalties paid by the members to the exchanges in settlement-related issues, d) interest earned by investment of the fund balance in the TGF e) less the amount utilised for meeting the shortfall in member defaults in a year.

The yearly contribution of the exchange and the base minimum capital of members accounts for almost 90 per cent of the TGF. For instance, the TGF balance towards the end of June 2016 was ₹258 crore. Of this, contribution of the exchange accounted for ₹105 crore and BMC (cash as well as non-cash component) was ₹129 crore.

Recent tweaks

SEBI has, through the circular issued on September 1, sought to fortify the TGF maintained by commodity exchanges. This is done in three ways,

One, the BMC or the security deposit paid by members who clear non-algo trades has been increased from ₹10 lakh to ₹25 lakh. Members who also clear algo trades shall, however, continue to maintain BMC of ₹50 lakh. The higher amount of security maintained with exchanges will go towards increasing the TGF. Further, interest earned by investing this incremental amount will also be useful to exchanges.

Two, changes have also been brought about in the contribution made by exchanges to the Trade Guarantee Fund. Currently, the extent of risk is to be assessed every quarter and funds are transferred to the TGF to enable the exchange to handle the risk. The transfers were, however, capped at 5 per cent of the turnover of the exchanges, net of income tax paid. SEBI has now stipulated that the exchanges need not limit themselves to 5 per cent of their turnover in transferring money to this fund.

 

If the risk of default arises, say, if there is a global crash in commodity prices, then the exchange can transfer much more funds, to brace itself for member defaults.

Three, rules regarding usage of funds in the TGF, in the event of a default, have also been clearly spelt out. SEBI has termed it the ‘default waterfall’.

If a member defaults from payment, then the funds withdrawn from the TGF shall be in the following order – first the security deposit paid by the defaulting member to the exchange (BMC) shall be used to repay clients, then insurance if any, will be claimed. If these are not sufficient, then 5 per cent of the corpus in the TGF can be used for meeting the default. The ulitisation of the TGF shall also follow a certain order; penalties and investment income shall be used first, then exchange contribution to the fund and finally the funds of non-defaulting members shall be used, on a pro-rata basis.

If the default is so huge that even these fall short, ₹100 crore shall be left in the TGF and the remaining paid out. After all this, if there are still some dues remaining, the clients will have to take a pro rata haircut.

The tweaks are welcome and could help in tackling an NSEL-like fiasco in future. But SEBI should also make sure that there are regular audits of the TGF, perhaps on an annual basis, to ensure that these rules are followed by the exchanges.

Source: http://www.thehindubusinessline.com/portfolio/real-assets/readying-comexes-to-take-on-defaulters/article9096891.ece

SEBI seeks major changes to new KYC process

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The Securities and Exchange Board of India (Sebi) has sought major changes in the newly implemented central Know Your Customer (KYC) process. The regulator has written that several market intermediaries such as mutual funds (MFs), brokerages and even banks were facing issues adhering to the new central KYC process.

Starting August 1, the government has shifted to the central KYC process, to enable common and one-time KYC for all financial market intermediaries. Central KYC is being implemented through the Central Registry of Secularisation and Asset Reconstruction and Security Interest of India (CERSAI), an online registry promoted by the central government.

In a recent letter, the capital market regulator has demanded a slew of changes, including more time between opening a new account and making an electronic entry with the central KYC registry.

KEY SEBI DEMANDS FROM FINMIN ON KYC
Extend time-period for compliance

Make Sebi-registered know your customer (KYC) agencies a pass-through link between market intermediaries and CERSAI

Exempt existing individual clients from fresh KYC process

Use UIDAI to enable e-KYC

Allow KRAs to do KYC on behalf of mutual funds

According to the norms, every financial institution needs to file an electronic copy of a client’s KYC records with the central registry within three days of an account being opened.

In a circular in July, Sebi had mandated all market intermediaries, including brokers and MFs, to make new KYC submissions to CERSAI. Several market players made representations to Sebi, highlighting the operational difficulties under the new system.

“It is a cumbersome job, right from disclosure to verification. We have sought extension in the timeline as deadline is not sufficient to meet the requirements,” said Nilesh Shah, managing director, Kotak AMC.

To sync the new system with the earlier common KYC, Sebi has also suggested to accept KYC Registration Agencies (KRAs) as a pass-through entity between registered intermediaries and CERSAI. Under the previous KYC regime, KRAs were the most important part of the system.

To avoid duplication of work, Sebi also wants to exempt individual clients whose accounts are opened before August 1 from undergoing KYC process all again. According to Sebi, KYC details of these clients are already with the KRAs and can be used even when they approach other registered intermediary for entering into account-based relationship, Sebi said in a letter to ministry.

Sebi had allowed interportability among KRAs, to enable sharing of information among them based on client’s permanent account number (PAN). To enable online KYC, Sebi has recognition of the Unique Identification Authority of India (UIDAI). The same would leverage the Aadhaar database and ease the process of doing business, said Sebi.

Apart from this, the regulator has also asked the ministry to allow share transfer agents to do KYC on behalf of mutual funds. However, the responsibility of KYC will continue to remain with the mutual fund on whose behalf the registrar carries out the KYC, noted Sebi.

 

Source: http://www.business-standard.com/article/markets/sebi-seeks-major-changes-to-new-kyc-process-116090300579_1.html

RBI launches website Sachet to tackle fraud

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The Reserve Bank of India (RBI) on Thursday launched a website from which anyone can obtain information regarding entities that are allowed to accept deposits, lodge complaints, and share information regarding illegal acceptance of deposits by unscrupulous entities.

 

Named Sachet, the website is expected to be helpful in coordination between regulatory authorities and law enforcement agents throughout the states so any unscrupulous money-raising activities can be curbed. Collective investment schemes (CISs) have come under the scanner and the regulators, particularly Securities and Exchange Board of India (SEBI) has cracked down on such activities after millions were duped by Sahara, Sarada, Pearl Agro, and such schemes.

 

Launching the website, RBI governor Raghuram Rajan once again warned the public not to fall prey to phishing emails that solicit money from unsuspecting people, in return for a fortune. Phishing is the activity of tricking people by getting them to give their identity, bank account numbers, etc over the Internet or by email, and then using these to steal money from them. “Please don’t fall prey for these fly-by-night operators who promise you the moon,” Rajan said. “Every day I get five or six such emails asking me the money I apparently promised … Reserve Bank does not give money. I don’t give my money to anyone,” Rajan said. The RBI governor stressed the need to stop such crime in progress and sites like Sachet will help curb that, Rajan said. Sebi wholetime member S Raman said the markets regulator has almost eliminated illegal CISs and complaints regarding these are now a trickle.

 

“The push factor behind these schemes was the agent commission. We have found that 30-35 per cent as agent commission was being given. And of course, legal loopholes were exploited too,” Raman said.

 

“The push factor we brought to the notice of the standing committee of the Parliament, which has recently submitted a report for a new legislation to the central government. One of the factors they have accepted is the existing of this push factor. And now, very soon, if the legislation is passed and when it is passed, commission of anything more than 3-5 per cent of any types of raising funds in this country will be deemed illegal,” Raman said.

 

Source: http://www.business-standard.com/article/finance/rbi-launches-website-sachet-to-tackle-fraud-116080500030_1.html