Relax investment norms for private equity funds: CII

August 21st, 2011 - 6:30 pm ICT by IANS  

New Delhi, Aug 21 (IANS) Investment guidelines for private equity and venture capital funds should be suitably relaxed as such investors aim at improving management and operations of companies and nurture companies over the long term, the Confederation of Indian Industry (CII) says.

Currently, private equity and venture capital funds are permitted to only acquire up to 15 percent stakes and cannot buy shares from the secondary markets.

CII said venture capital funds registered with the Securities and Exchange Board of India (SEBI) should be allowed to invest up to one-third of fund capital through both primary and secondary purchases of equity shares.

“Further, such investments should be construed as complying with prevailing capital market regulations including open offer requirements,” said a statement from CII.

The CII report also suggested that private equity and venture capital funds should be allowed to invest 25 percent of the capital of target companies without resorting to an open offer.

“Private equity and venture capital investments are of medium to long term nature aimed at not purely investing but also nurturing the companies in terms of provision of management and operational support,” said CII.

The industry body also called for removal of restrictions of investments by such entities in non-banking finance companies (NBFCs).

“Given the role played by the NBFCs, especially in meeting the micro funding needs of the economy, investments by SEBI-registered venture capital funds should not be confined to only financially weak or sick companies but also in equity linked instruments or convertible instruments of all companies including investing in NBFCs, holding companies and buyout SPVs that are classified as capital investment companies.”

CII also said that the minimum investment requirements for a SEBI registered private equity or venture capital fund should be raised to Rs.50 lakh from the current Rs.5 lakh to ensure enhanced investor protection.

The report further suggested that the Insurance Regulatory and Development Authority of India (IRDA) should allow insurance companies to invest in private equity funds as an asset class in general, thus removing the restriction of allocation to infrastructure investments only.

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