China reduces IPO lock-up period to 12 months

The Shanghai and Shenzhen stock exchanges will make it easier for private equity firms to exit their Chinese investments. Backers of portfolio companies that have gone public will now only have to wait one year instead of three years to sell stakes.

The Shanghai Stock Exchange and Shenzhen Stock Exchange will from October allow private investors to offload their stakes in listed companies after one year, yet another regulatory move that will benefit private equity firms investing in China.

Earlier, funds investing in companies within 12 months before the company listed its shares had to wait 36 months to divest their stakes. 

Private equity firms have so far been reluctant to invest in pre-IPO deals as a three year lock-up period puts constraints on firms seeking to exit their investments through public listings of investee companies. The change is likely to increase the amount of private equity capital being invested in the country.

Making private equity investments in China has traditionally been extremely difficult with limitations on

Shanghai Stock
Exchange: easier
exits for PE

where firms can invest, how they can exit and frequent changes in regulations. It is a concern the Chinese authorities are keen to address as an increasing number of fund managers consider investing in the country.

Of late, the government has been implementing measures to create an environment conducive for private equity investments.

The authorities have granted approvals to a number of yuan-denominated domestic private equity funds to provide companies with financing. They have permitted a few securities firms to invest in the asset class as well.

Last month, China passed a new anti-monopoly law, which is likely to benefit foreign private equity firms as it levels the playing field between foreign investors and domestic investors and could potentially make acquisitions of small Chinese companies by foreign private equity firms easier.

However, while certain regulatory changes have been made, some concerns remain for foreign private equity firms. Only last month, The Carlyle Group scrapped plans to acquire a 45 percent stake in Xugong Group Construction Machinery as the deal failed to secure government approval after three years.