SEBI has relaxed the investment norms for private equity funds. The market regulator has done away with the requirement for PE firms to stay invested in a security for at least a year post IPO.
With this, PE firms can exit soon after listing of an IPO if they have a holding period of one year in a security. Currently, Category I AIF, which includes venture capital, angel funds, SME funds and infrastructure funds, enjoys such a relaxation.
Sharing the rationale for this decision, SEBI, in a press release said, “Presently, in case of an IPO, there are relaxed rules for lock-in provision to Category I AIFs. The Board approved the proposal for extending such relaxation to Category II AIFs also. This would bring about uniformity, ease of doing business and expand the investor base available for capital raising.”
Category II includes private equity funds and debt funds. These funds can invest in pre-IPO offerings of companies.
Experts said that the move would help bring uniformity across AIFs and provide an easy exit to the fund after the IPO.
“Earlier, PE firms had to wait for a year after the stock was listed but now they have to stay invested only for one year from the time of investment. Simply put, if a PE firm invests in xyz company six months before the IPO, they can exit xyz six months after its listing. This will provide flexibility to AIFs and they can take exit calls when the time is right,” says Prashasta Seth, CEO, IIFL Asset Management.
Vikas V. Gupta, Head - Research and Product Development, Arthveda believes that this relaxation will help increase liquidity in the AIFs. “It is a positive step for the private equity funds and investors. It provides liquidity and better price discovery for the minority shareholders of the company,” he says.