Pakistan lays framework for private equity

The Securities and Exchange Commission of Pakistan (SECP) has approved a regulatory framework for the regulation and registration of venture capital and private equity funds in the country.
Until now, private equity activity in the country was governed by the Non-Banking Finance Companies and Notified Entities Regulations of 2007. Gowing forward, however, matters pertaining to the formation of fund management companies, the raising of private equity funds and their investments in Pakistan will be governed by the newly approved Private Equity and Venture Capital Fund Regulations.
According to the new regulations, private equity funds will only be open for investments to high net worth individuals and institutions.
Fund management companies will be classified as nonbanking financial companies and they will be licensed by the SECP to undertake management services.
The minimum size of funds has been fixed at 250 million Pakistani rupees. Each fund is required to have at least five investors with a minimum commitment of 10 million Pakistani rupees per investor. Funds will have a maximum life of 15 years and they are not allowed to be listed at any point.
Simultaneously, the government, through the Finance Act of 2008, has been providing incentives to promote private equity activity in the country, the report said. Under the provisions of the Finance Act, private equity funds enjoy tax-free status until 2014.
Furthermore, taxes on capital gains have been reduced from 35 percent to 10 percent in the case of assets or shares of private companies that are sold to private equity funds.
Under the new private equity regulatory framework, the SECP has provided for overseas private equity funds to avail of these tax benefits as well. Foreign funds raising money overseas will be subject to minimal regulation, the report says, while foreign funds raising money from domestic investors will be given the same treatment as domestically domiciled funds.
The new regulatory framework provides more clarity with regards to the private equity activity than the existing regulations did.