Pre-IPO VCF investment will be locked in for 12 mths: Sebi

From Financial Express
October 17, 2006

The Securities and Exchange Board of India (Sebi) has tightened the investment guidelines with respect to venture capital funds (VCFs) and foreign venture capital investors (FVCIs) registered with it. The regulator has decided to impose a lock-in period of 12 months on all pre-initial public offer (IPO) investments made by VCFs/FVCIs. Prior to this amendment in the DIP guidelines, shares held by VCFs and FVCIs were exempted from the lock-in period. The amendment regarding lock-in will be applicable to all offer documents, which are yet to be registered with the Registrar of Companies (RoC). Sebi said, the move is in order to make the Indian primary market more efficient and transparent. As per the new policy, shares held by Sebi-registered VCFs or FVCIs for a period of at least one year as on the date of filing the draft prospectus with Sebi will attract a lock-in of one year. Also, shares issued to Sebi registered VCFs/FVCIs upon conversion of convertible instruments will also attract a lock-in of one year. That is if, during the period of one year prior to the date of filing draft prospectus with Sebi, if any convertible instrument is converted into equity, than these shares will also attract a lock-in, provided that the period of holding such convertible instruments as fully paid up, together with the period of holding shares resulting from conversion, is at least one year as on the date of filing the draft prospectus with Sebi. The amendment gains significance as there are close to 80 VCFs registered with Sebi while there are more than 51 Sebi registered FVCIs. The players in the industry said the move by the regulator may be to discourage the entry of fly-by-night operators who want to take advantage of the booming Indian corporate sector. Also, some of the players were of the opinion that even if this provision of lock-in may prove to be a dampener for some, investments in deserving Indian companies will continue as private equity players who are qualified institutional investors, have faith in the long term India story.