Legal & Regulatory Briefs

Compiled by our Legal & Regulatory Council, EMPEA's Legal & Regulatory Briefs highlight recent legal and regulatory developments across the emerging markets private equity landscape.


SEBI Liberalizes IPO Norms

The Securities and Exchange Board of India (SEBI) has announced changes to the IPO guidelines for companies seeking to list on Indian stock exchanges. Entrepreneurs who cannot contribute the requisite 20 percent share of the offering will be allowed to raise 10 percent of the total offering from SEBI-registered Alternative Investment Funds (AIFs). Furthermore, SEBI has attempted to protect retail investors in IPOs by barring the withdrawal or lowering of bids by non-retail investors at any stage of the IPO process. Finally, companies will be allowed to value their shares at a maximum five percent discount to the two-week average share price, the mechanism which determines the price of the offered shares. SEBI made the changes in the wake of a slowdown in the IPO market caused in part by volatility in pricing. The liberalization of the rules surrounding IPOs is intended to improve demand from investors and to encourage more companies to pursue listing on Indian exchanges.

Source: Securities and Exchange Board of India, 16 August 2012.


Indonesia Creates New Financial Regulatory Agency

The government of Indonesia has announced the creation of a new financial services regulatory agency, the Otoritas Jasa Keuangan (OJK), intended to streamline regulation of the banking industry, capital markets and other financial institutions. Previously, the banking sector and foreign exchange system were regulated by Bank Indonesia, the country’s central bank, while capital markets and nonbank financial institutions were monitored by the Badan Pengawas Pasar Modal (Bapepam), a division of the Ministry of Finance. In 2011, the Indonesian parliament voted to disband Bapepam, with Bapepam’s capital markets and NBFI (including private equity and venture capital) regulatory functions transitioning to OJK by December 2012, and oversight of the banking sector transitioning by December 2012, making OJK a fully independent agency answerable to parliament. Bank Indonesia retains oversight of macro prudential regulation, monetary policy and foreign exchange.

Source: International Financial Law Review, 26 June 2012.


China Corporate Records Policy Shift to Restrict Hedge Fund and PE Access

A policy change instituted in recent months by regional Administrations of Industry and Commerce (AICs) in Shandong, Tianjin, Shanghai and now Beijing will prevent offshore PE investors and their deal counsel from accessing and sharing details of a prospective investee’s corporate profile from the AICs’ database unless they have prior written authorization from the company or the court. The move was believed to have been prompted by the discovery of the unauthorized disclosure and sale of regulated company information to overseas and Chinese third parties. AIC documents have also been cited in recent challenges to the accuracy of the financial data being provided by Chinese companies listed on U.S. exchanges.

Source: International Financial Law Review, 1 June 2012.


SEC Proposes Rule Changes Permitting General Solicitation

The SEC has proposed amendments to the rules surrounding the marketing of private placement vehicles that would eliminate the ban on general solicitation and advertising of these vehicles. The proposal stems from changes mandated by the Jumpstart Our Business Startups (JOBS) Act, passed in April 2012. Under the current structure, Rule 506 of Regulation D of the Securities Act of 1933 prohibits fund managers from publicly advertising their funds to accredited investors. The amendment, Rule 506(c), would allow fund managers to claim an exemption from the prohibition if they can verify that all purchasers of the offering are accredited investors. They must also explicitly claim the exemption on the SEC’s Form D. The inclusion of rule 506(c) should allow fund managers to openly discuss their funds with public sources, including the media and at industry conferences. The deadline to submit comments on the proposed changes was 5 October 2012, and as of early November the SEC had not indicated a date for a ruling on the proposed changes.

Source: Akin Gump Strauss Hauer & Feld LLP, 4 September 2012.


Turkish Commerical Code and Its Impact on Private Equity

The Turkish government introduced a comprehensive set of regulations regarding corporate governance and transparency that took effect on 1 July 2012. The new commercial code will greatly increase the transparency of private company finances by requiring new standards of compliance and consistency in financial reporting. All companies will be required to produce International Financial Reporting Standards (IFRS)-compliant financial statements by 2013, which should aid private equity investors in accurately valuing portfolio companies and increase the number of potential acquisition targets.

Source: International Financial Law Review, 1 July 2012.


South Africa's Conditions for Investment in Private Equity Funds

In March 2012, the Financial Services Board of South Africa (FSB) issued the Conditions for Investment in Private Equity Funds (the Conditions) outlining the regulations surrounding pension fund investments into private equity funds. The regulations were the result of a 2011 amendment to Regulation 28 of the Pension Funds Act of 1956, which allowed pension funds to invest up to 2.5 percent of assets in a single private equity fund and up to five percent of assets in a single private equity fund of funds. However, the Conditions state that pension funds may only invest in private equity funds that are members of a private equity fund industry body and whose service providers, including advisors, are registered as Discretionary (Category II) Financial Services Provider. As such, all private equity fund managers must obtain Category II status with the FSB. The new requirements were due to take effect on 30 September 2012 but will now take effect on 31 December 2012.

Source: Norton Rose, September 2012.


Myanmar Debating New Foreign Investment Law

The government of Myanmar has finalized the provisions of a new law governing foreign investment, including private equity investment, into the country. The provisional law initially passed 7 September by Myanmar’s parliament was subsequently rejected by President Thein Sein and has since been revised to address concerns that the original protections were overly protectionist and detrimental to attracting foreign investment. Changes included the removal of a requirement that foreign firms invest a minimum of US$5 million in any joint venture with a Myanmar-based company and the removal of the cap on foreign ownership in a joint venture the percentage of which can now be set by the partners themselves. Additionally, the Myanmar Investment Corporation was given discretionary authority to set levels of foreign investment in restricted or “sensitive” sectors.

Source: Financial Times, 17 September 2012; Financial Times, 4 November 2012.



Disclaimer: This material should not be construed as professional legal advice and is intended solely as commentary on legal and regulatory developments affecting the private equity community in emerging markets. If you would like to link to this material from your website, please contact Holly Freedman at