ACA stake buy in Repco Home Finance not permissible: Sebi

Venture capital regulations require a VC fund to make a minimum investment of 66.67%

Market regulator Sebi has said that a proposed investment of ACA Private Equity Trust, which has UTI Investment Advisory Services as trustee, in housing loan firm Repco Home Finance would not be permissible under its venture capital regulations.

The Securities and Exchange Board of India (Sebi) has expressed its opinion on the matter after an 'informal guidance' sought by Unit Trust of India Investment Advisory Services (UTI-IAS) about the proposed investment.

The guidance was sought by ACA Private Equity Trust in February and Sebi replied to it through a letter dated May 2, 2012, which was made public today.

ACA Private Equity Trust is registered with Sebi as a venture capital fund (VCF) and its trustee is UTI-IAS, which in turn is owned by the Special Undertaking of UTI (SUUTI).

The shares of UTI-IAS are vested in an Administrator appointed by the Government of India and is advised and assisted by a government-constituted board of advisors.

As per Sebi's guidance letter, ACA Private Equity, through its scheme Ascent India Fund, proposed to acquire a minority stake in Repco Home Finance, a housing finance company promoted by the Repatriates Co-operative Finance and Development Bank (Repco Bank), a government-owned enterprise under the administrative control of Ministry of Home Affairs.

Sebi observed that Repco Home Finance is not registered with RBI as an NBFC and is engaged in asset-backed financing for mortgage of homes and loans against properties.

The regulator further said that Repco Home Finance was an unlisted company and had filed its draft IPO prospectus.

Sebi said that its VCF regulations require a venture capital fund to make a minimum investment of 66.67% in unlisted equity shares of venture capital undertakings.

It further observed that Repco Home Finance, being a housing finance company which is not registered with RBI as an NBFC, and therefore it is not a venture capital undertaking.

"In view of the above, the proposed investment by the ACA Private Equity Trust in Repco Home Finance is not permissible under VCF Regulations," Sebi said.

The regulator said that its position was based on the representation made by UTI-IAS and "different facts or conditions might require a different result."

"This letter does not express decision of the Board on the questions referred," Sebi further said.

UTI-IAS in its letter had said that Repco Home Finance was only engaged in the business of asset-backed financing, and therefore it was of view that an investment by th Fund would not be in violation of Sebi's VCF regulations "either in letter or in spirit".

UTI-IAS had requested Sebi to keep the matter confidential at that time, as Repco Home Finance had filed a draft prospectus for a public issue.