SEBI allows PE help to start-up IPOs for lock-in requirement
MDT/PTI 27 August 2012

SEBI allowed professionals and qualified entrepreneurs to get help from private equity and other funds to meet share lock-in requirements

New Delhi: With an aim to help companies set up by professionals and qualified entrepreneurs to tap capital market, market regulator Securities and Exchange Board of India (SEBI) has allowed them to get help from private equity (PEs) and other funds to meet share lock-in requirements, reports PTI.

 

As per regulations of SEBI, promoters are required to lock-in at least 20% stake in the company for at least three years after allotment of shares in initial public offering (IPO).

 

Besides, any holding in excess of this minimum 20% promoter stake is required to be locked in for one year.

 

To encourage professionals and technically qualified entrepreneurs who are unable to meet the requisite 20% contribution by themselves as promoters, the regulator has now decided to allow such start-up promoters to meet this requirement with help of SEBI-registered registered AIFs.

 

AIFs or alternative investment funds are a newly approved class of investors which include private equity (PE), SME, infrastructure, venture capital funds, among others.

 

However, the contribution of these AIFs would be capped at 10% to meet the promoter share lock-in guidelines.

 

The proposal has been approved by the SEBI board and would be soon incorporated into the relevant guidelines.

 

SEBI is of the view that such a step would encourage the professional and first-generation entrepreneurs to tap the capital market to raise funds.

 

The decision was taken after a recommendation in this regard by SEBI's Primary Market Advisory Committee (PMAC).

 

The PMAC was of the view that in the companies founded by professionals or first-generation entrepreneurs, where the post-IPO equity held by promoters is less than 20%, AIFs could be permitted to provide the balance equity, subject to a minimum 10% being contributed by the promoters.

 

The PMAC also suggested that the capital contributed by AIFs for this purpose shall be locked in for two years.

 

SEBI, however, decided that the requirement of lock-in of three years should uniformly apply to both Promoters and AIFs.

 

Further, SEBI has decided to review the lock-in tenure at periodic intervals, as per the international practice.

 

The promoters are allowed to pledge their locked-in shares as collateral security for any loans granted for financing one or more of the objects of the issue, provided pledge of shares is one of the terms of sanction of the loan.

 

The PMAC had suggested a relaxation in this regard by allowing pledging of locked-in shares for loans taken by the company for other objects of its business, as laid down in its memorandum and articles of association.

 

SEBI, however, rejected the idea, as it felt that the existing restrictions were aimed at ensuring the commitment of the promoters towards the objects of the issue.

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