SEBI allows PE help to start-up IPOs for lock-in requirement 2012

SEBI allows PE help to start-up IPOs for lock-in requirement 2012

WITH an aim to help companies sei up by professionals and qualified enlreprcneurs to tap capital market, the market regulator SEBI has allowed them to get help from PF.s and other funds to meet share lock-in requirements. As per regulations of the Securities and Exchange Board of India (SEBI). promoters are required to lock-in at least 20 per cent stake in the company for at least three years after allotment of shares in Initial Public Offer (IPO).
Besides, any holding in excess of this minimum 20 per cent 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 per cent contribution by themselves as promoters. the regulator has now decided to allow such start-up promoters to meet this requirement with the help ofSEBl-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 per cent to meet the promoter share lock-in guidelines. The proposal has been approved hy 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 thai in ihe companies founded hy professionals or firsl-generation entrepreneurs, where the post-IPO equity held by promoters was less than 20 per cent. AIFs could be permitted to provide the balance equity, subject to a minimum 10 percent 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. SEBI has decided to review lock-in tenure at periodic intervals, as per the inter national practice. The promoters are allowed to pledge their locked-in shares as collateral security for any loans granted for financing one or more of objects of the issue.