CII report recommends for a favourable regulatory environment for Private Equity and Venture Capital Investments in India
On the minimum investment requirements for a SEBI registered Private Equity & Venture Capital Fund, the CII also recommended that minimum investment amount for investment in a domestic SEBI-registered fund should be raised to Rs. 50 lakhs from the current Rs. 5 lakhs to ensure enhanced investor protection. The report further suggests that the IRDA should allow insurance companies to invest in Private Equity & Venture Capital funds as a asset class in general thus removing the restriction of allocation to infrastructure investments only.
The CII report suggests that FDI guidelines be amended to allow foreign investments in SEBI-registered Private Equity & Venture Capital funds through the automatic route and the RBI should also allow formula-based pricing linked to the performance of the portfolio company at the time of conversion of convertible instruments to the extent that the RBI seeks parameters on these conversions. The RBI should also provide for the legal rights of existing Private Equity & Venture Capital investors holding convertible instruments to remain unmodified, the CII report has said.
Currently, the pricing by Private Equity & Venture Capital stakes is directed to be to equal to the higher of the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date. Amid volatile markets, the CII report notes that this is too long a period. Hence the CII report suggests that QIP pricing guidelines relating to a two weeks period applicable to institutional investors should also be applicable to SEBI-registered Private Equity & Venture Capital Funds.
Private Equity & Venture Capital investors play a distinctive role in the investee company that goes beyond mere value adds to the capital. The report suggests that Private Equity & Venture Capital should be permitted to retain their rights in the Articles of Association of a company subsequent to an IPO with the requisite prior approval of the shareholders of the company and with due disclosures to prospective investors. The CII report also notes that Private Equity & Venture Capital investors should also not be construed as persons acting in concert with promoters, merely by virtue of having board representation in the target company.
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(Source- CII Press Release)
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