Sebi mulls allowing FPIs to invest in unlisted NCDs

With an aim to deepen capital markets, regulator Securities and Exchange Board of India (Sebi) may consider allowing FPIs to invest in unlisted non-convertible debentures and securitised debt instruments in its board meeting on Wednesday.

In a slew of proposed reform measures, the regulator also plans to tighten corporate governance rules on profit-sharing agreements between promoters and private equity funds as part of its efforts to safeguard minority shareholders in markets. Sebi also plans to reduce minimum angel fund investment for venture capital firms to Rs 25 lakh from the current Rs 50 lakh to boost the early-stage startup ecosystem.

The regulator may allow the angel funds to make overseas investments up to 25% of their investible corpus, in line with other Alternative Investment Funds (AIFs). The move will make such funds to spread their risk by investing across geographies.

These proposals are likely to be discussed in the board meeting of Sebi on Wednesday, sources said. The regulator plans to allow Foreign Portfolio Investors (FPIs) to invest in unlisted non-convertible debentures and securities debt instruments. RBI has also recently relaxed its rules for allowing such investments by FPIs.

The move comes after Sebi’s board in September allowed well-regulated FPIs to directly trade in corporate bonds, without going through any broker or other intermediary. Prior to that, FPIs could trade in Indian markets only through brokers (registered with exchanges as their members). The move is aimed at boosting foreign inflows in Indian markets and deepening and widening the corporate bond market.

Sebi is planning to make it mandatory for promoters and top executives of firms entering into special profit-sharing deals with private equity funds to obtain prior approval from the company's board and shareholders.