India alters rules on anchor investors, PE disclose for IPOs

Notably, disclosures made by venture capital and private equity funds will be handled separately from those made by promoters, The Business Standard reported. "Considering the constraints in disclosures by investee companies regarding funds, which are shown as a promoter of such an investee company, it has been decided to specify a separate set of disclosures for them," SEBI said in a statement.

The change means that more private equity funds are likely to act as promoters. They have previously avoided this role, and shied away from taking control of transactions, because of requirements obligating them to disclose investments in other companies. Last week SEBI dropped an appeal in the Supreme Court against Subhkam Ventures, which had resisted the regulator's demands that it take full control of MSK Projects after investing in it.

Regarding anchor investors, SEBI is expected to impose a limit on the number that can be involved in a single transaction. At present, at least two anchor investors are required for issues of up to INR2.5 billion and at least five investors thereafter. Anchor investors will also be subject to a lock-in period of 30 days.

Separately, SEBI has capped the tenure of warrants issued by promoters when making a public or rights issue at 12 months. There is also a requirement to disclose the proposed use of funds raised through warrants.

India's securities regulator has introduced a range of reforms in recent months that have an impact on private equity. Revised takeover rules announced in June increase the ownership threshold at which investors are obliged to launch a takeover bid for an asset from 15% to 25%. This lightens the financial burden on private equity firms seeking to build stakes in listed companies.

In August, SEBI unveiled comprehensive draft measures that would tighten its control over alternative investment funds (AIFs). Funds are currently subject to a set of rules enacted in 1996 that were only supposed to incubate start-up companies and encourage innovation. As a result, all funds are currently categorized as simply venture capital funds, regardless of their investment mandate. SEBI wants funds to delineate their investment purposes from the outset and stick with them.

There are concerns that this approach might be overly heavy-handed. "In terms of fundraising and disclosure and the multiple registration requirements, I think this is going to complicate things more than the industry needs and may end up putting people off," Akil Hirani, managing partner at Majmudar & Co., International Lawyers, told AVCJ at the time. "A middle ground would have been better."

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• Topics
• South Asia
• Regulation
• Exits
• India
• regulation
• IPO
• SEBI