By Jayshree P Upadhyay
MUMBAI (Reuters) -India’s market regulator has told mutual fund managers that they cannot invest in companies before they list, two sources with direct knowledge of the matter said on Friday.
Certain mutual funds had sought clarifications from the Securities and Exchange Board of India as to whether pre-Initial Public Offer placements qualify as eligible investments. But the regulator said only investments during the official IPO process are allowed, including large, early-stage anchor investments, the sources said.
SEBI did not immediately respond to an emailed request for comment outside of business hours.
Indian companies are set to raise a record $18.5 billion this year, making India the third-largest country globally in terms of funds raised via first-time listings.
A pre-IPO placement is a private sale of shares to select investors before the company officially launches its listing. In India, alternative investment funds and foreign investors are typically allowed to buy these shares.
Mutual funds manage 75.61 trillion Indian rupees ($860.23 billion) and are mostly targeted at retail investors.
“Fund houses facing pressures to generate returns were hoping to invest in pre-IPO placements but this clarification puts those hopes to rest,” said one of the sources.
The regulator communicated its concern to fund houses that if they invest in a pre-IPO placement and the company ends up not listing for some reason then they will end up holding unlisted shares, the second source said.
“Mutual funds are not permitted to hold unlisted shares,” the two sources said.
($1 = 87.8950 Indian rupees)
(Reporting by Jayshree P Upadhyay; Editing by Kirsten Donovan)
