Financial Daily from THE HINDU group of publications
Thursday, Apr 15, 2004
Regulatory Bodies & Rulings
Industry & Economy - Venture Capital
SEBI amends norms on venture capital funds
New Delhi , April 14
THE Securities and Exchange Board of India has made a slew of changes to its existing regulations on venture capital funds and foreign venture capital investors, including alterations to the minimum investment limit norms and allowing such funds to invest in financially weak companies or listed sick industrial companies.
Besides changing the minimum investment limit norms, the capital market regulator has also permitted investment in a host of activities that were hitherto prohibited.
SEBI-registered venture capital funds/foreign venture capital investorshave now been permitted to invest in real estate. Prior to the latest change, they were barred from investing in companies in the real estate sector.
The capital market regulator has also allowed them to invest in companies engaged in gold financing for jewellery. Hitherto, gold financing was not a permitted activity under the SEBI regulations.
Further, the SEBI has also allowed investment in the Reserve Bank of India-registered non-banking finance companies (NBFC) that have been categorised as equipment leasing or hire-purchasing companies.
The latest changes are largely in line with the recommendations made by the SEBI-appointed Advisory Committee on Venture Capital, which was chaired by Dr Ashok Lahiri, Chief Economic Advisor in the Ministry of Finance.
As regards the investment conditions for venture capital funds, the SEBI has now held that a fund needs to now invest at least 66.67 per cent of its investible funds in unlisted equity shares or equity-linked instruments. Hitherto, they were required to invest at least 75 per cent.Under the remaining portion of 33.33 per cent or less, the SEBI has now permitted such fundsto subscribe to initial public offering of a venture capital undertaking without any lock-in-period for such shares after they are listed.
Until now, the SEBI regulations stipulated that a venture capital fund could invest by way of subscription to the IPO of a venture capital undertaking subject to the condition that the shares would have a 1-year lock-in period from the date of their listing in the bourses.
Within the portion of the 33.33 per cent or less, the funds can now invest in the preferential allotment of equity shares of a listed company subject to the lock-in period of one-year. They have also been permitted to invest in the equity shares or equity linked instruments of a "financially weak company" or a sick industrial company whose shares are listed.
The funds can also now invest in the special purpose vehicles, which are created by them for the purpose of facilitating or promoting investments.
The SEBI has also held that the investment conditions spelt out by it under Regulation 12 (d) would have to be achieved by the fundsby the end of the life cycle.
Further, the capital market regulator has also stipulated that the fundsshould disclose the duration of life cycle of the fund.
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