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PE players wary of SEBI's safety net plan

Institutional investors including private equity players are treading cautiously especially at equity level deals as SEBI proposal for a safety net for retail investors could impact their returns from unlisted entities, Sachin Dave reports.

business Updated: Sep 04, 2012 23:27 IST
Sachin Dave

Institutional investors including private equity (PE) players are treading cautiously especially at equity level deals as the Securities and Exchange Board of India's (SEBI) proposal for a safety net for retail investors could impact their returns from unlisted entities.

Under the safety net, retail investors would get protection on their investment if the trade price of the initial public offering (IPO) falls below the issue price within the first 15 days.

The company coming out with the IPO would be required to compensate the retail investors.

PE players are learnt to be delaying investment decisions at equity level till the safety net regulation becomes clear, say industry trackers.

Some institutional players warn that the safety net guidelines could have an opposite effect.

"Such a regulation is against the principal of equity, which in itself is a high-risk, high-return investment," said an India head of a USA-based PE fund that has invested in some IT firms exploring IPOs in 2013.

"Safety net would have an opposite effect on IPO pricing and companies would price their shares more aggressively, as investors would have an assurance in case the price of stock falls," the official added.

"There is a mechanism present in some markets outside India where investments of the institutional investor are underwritten to support the stock price during a green shoe option," said Avinash Gupta, head, financial advisory, Deloitte India.

"Institutional investors who have invested in a company (going for an IPO) would not want retail investors to suffer, as it impacts their credibility."

Industry experts said retail investors would avoid stocks where such institutional investors are involved.