SEBI TIGHTENS NORMS FOR FIIs
The Securities and Exchange Board of India (SEBI) has asked foreign institutional investors (FIIs) to stop using complex structures of protected cell companies and segregated portfolio companies. In addition, it has mandated that the investor base be broad based in case of multi-class share vehicles. The twin moves are part of the market regulator's plan to curb potential round-tripping through FIIs and also increase transparency. From now on all FIIs, whether already registered or not, will have to undertake that they do not follow a protected cell company or segregated portfolio company structure.
PROTECTED CELL COMPANIES
Protected Cell Companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, a cellular capital, dividends and accounts. Each cell functions as an independent unit within the overall set-up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.
MULTI CLASS SHARE VEHICLE
For those that use the MCV model, there are two routes. The first option is to have a common
portfolio, where there need to be at least 20 investors at the FII level. The second route that
could be used is to have a segregated portfolio for each class of investors, provided each class
has at least 20 investors. Any change in the structure or an addition of classes will require a
prior regulatory approval. Any addition of share classes would have to adopt the broad-based
criteria by having at least 20 investors.
NEW PE VALUATION NORMS FOR UNLISTED COs
Foreign private equity firms will face stiff valuations when they decide to buy stakes in unlisted companies following a change in valuation norms by the Reserve Bank of India (RBI). The shares in unlisted companies will now have to be valued using a discounted cash flow model. This will remove any discretion in price- fixing and also reduce the chances of lower valuation under the earlier guidelines that fixed the price at average of two different valuations.
PROTECTED CELL COMPANIES
Protected Cell Companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, a cellular capital, dividends and accounts. Each cell functions as an independent unit within the overall set-up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.
MULTI CLASS SHARE VEHICLE
For those that use the MCV model, there are two routes. The first option is to have a common
portfolio, where there need to be at least 20 investors at the FII level. The second route that
could be used is to have a segregated portfolio for each class of investors, provided each class
has at least 20 investors. Any change in the structure or an addition of classes will require a
prior regulatory approval. Any addition of share classes would have to adopt the broad-based
criteria by having at least 20 investors.
NEW PE VALUATION NORMS FOR UNLISTED COs
Foreign private equity firms will face stiff valuations when they decide to buy stakes in unlisted companies following a change in valuation norms by the Reserve Bank of India (RBI). The shares in unlisted companies will now have to be valued using a discounted cash flow model. This will remove any discretion in price- fixing and also reduce the chances of lower valuation under the earlier guidelines that fixed the price at average of two different valuations.
0 comments:
Post a Comment