India’s market regulator has told mutual fund managers they cannot invest in companies before they list, Reuters reported on Friday, citing sources.
Certain mutual funds had sought clarifications from Securities and Exchange Board of India, or SEBI, as to whether pre-IPO placements qualify as eligible investments. But the regulator said only investments during the official IPO process are allowed, including large, early-stage anchor investments.
SEBI did not immediately respond to an emailed request from Reuters.
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.
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 initial public offerings. Mutual funds manage ₹75.61 lakh crore ($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.
SEBI 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,” both the sources said.