New Delhi; The Finance Ministry is not in favour of granting foreign institutional investor (FII) status to foreign direct investment (FDI) received through private placement of equity in pre-IPO period by the realty sector.
Even though the Finance Ministry is holding consultations with RBI, SEBI and the Department of Industrial Policy and Promotion (DIPP) to evolve a consensus on the issue, ministry officials said it is not in favour of giving concessional treatment to this type of FDI on the lines of FII.
FII has a lock-in period of one year and FDI three years in the pre-IPO stage. The Reserve Bank has opposed reducing the lock-in period of this kind of investment in pre-IPO stage.
Finance Ministry officials also said since in the pre-IPO stage, prices are not market determined, it may not be fair to reduce the timing of the lock-in period. It could lead to unfair gains, they said.
Leading real estate players, who want to encash on the investors’ increasing appetite for realty sector stocks, have been seeking FII status for their pre-offer placement as many of their existing projects are not meeting tough FDI norms.
According to officials, if the investors want to book profit in the booming real estate sector by investing at the pre-IPO stage, they should be ready to wait for at least three years-- the lock-in period for the FDIs.
Otherwise, they would be making quick gains as there is a high possibility that they may get stake in the pre-IPO stage at very concessional terms, the officials said.