MUMBAI: Financial sector regulators in India are working at clearly defining private equity (PE) investments and evolving a regulatory structure for facilitating inflows through this route.
Currently, the term private equity is broadly defined, although there are sub-categories such as venture capital (investments into start-ups and early stage companies), growth capital (equity investments in mid-late stage companies), leveraged buyouts (ideal for companies with higher leverage, higher margins and stable cash flows), buyouts (ideal for promoters looking for exit opportunities) and distressed or special situations.
ET has learnt that senior officials from the finance ministry, Foreign Investment Promotion Board (FIPB), the Reserve Bank of India, the Securities and Exchange Board of India (Sebi) and industry body India Venture Capital Association met in Delhi recently to discuss the issue.
“The purpose is to assess whether the current regulatory regime is conducive for different types of capital essential for the growth of the industry,” an official who attended the meeting told ET.
Regulators are also working towards forming an association similar to the Association of Mutual Funds of India (AMFI) for collating all data pertaining to PE investments in the country.
Currently, data on PE investments and foreign direct investments are combined together. Most of the information on PE flows are sourced from private aggregators. In another development, RBI may review its recent decision on clearing foreign venture capital funds (VCFs) with sectoral restrictions, people familiar with the matter told ET.
Late last year, the central bank started clearing the applications backlog of many foreign venture capital funds that were adequately capitalised. Many VCFs were setting up entities in Mauritius with only a few thousand dollars, as overseas investors in those funds were reluctant to park money in Mauritius before receiving regulatory clearances. This was unacceptable to RBI.
While clearing the cases, RBI inserted a new clause that restricted investments by these foreign funds to certain sectors on the lines of similar prescriptions under the Income Tax Act for availing of a tax pass-through for Sebi registered VCFs.
Foreign VCFs will be permitted in 10 sectors, including infrastructure, biotechnology, hardware and software development, nanotechnology, seed research and development, R&D of new chemical entities in pharma sector, dairy industry, poultry industry, production of bio-fuels and hotel-cum-convention centres with seating capacity of more than 3,000.
Policymakers are wary of venture fund investments in the real estate sector and are refusing to clear the applications of interested foreign VCFs. In 2004, Sebi had removed real estate from the negative list to encourage inflows. Now, this sector does not figure either in the negative list or the list of sectors approved for VCF investments.
Source:The Economic Times