The Securities and Exchange Board of India on Thursday proposed changing rules to ease the lock-in norms of pledged pre-IPO shares for non-promoters.
As per current rules, the entire pre-issue capital held by non-promoters, except shares held by certain specified categories of shareholders, shall be locked in for a period of six months from the date of allotment in the IPO.
The regulator has received representations from the market participants highlighting challenges faced by companies in complying with the lock-in requirements of non-promoters, particularly in cases where pledges have been created before the IPO.
"The existing framework requires modification to address situations where depositories are unable to create lock-in on pledged shares. The proposed framework will enhance ease of doing business, while safeguarding the interest of lenders," a SEBI consultation paper said.
Regulator's Proposal
The IPO-bound company can allow pledged shares by non-promoters to be treated as locked-in for the applicable period.
In case of invocation of the pledge, equity shares shall be locked-in the account of the pledgee/lender for the balance period of lock-in.
If pledged shares are released, those will be locked-in in the account of the pledger for the balance period.
The company must inform existing lenders and pledgees about the changes made to the Articles of Association.
It must also be prominently disclosed in the Draft Red Herring Prospectus and Red Herring Prospectus filed before the IPO. "Such disclosure will clearly state that any shares received by lenders/pledgees, upon invocation of the pledge, will remain under lock-in for the balance period as required under the ICDR Regulations," SEBI said.
Depositories like NSDL and CDSL will ensure that, after the invocation or release of a pledge, the shares in the account of the beneficiary (pledger or pledgee) will automatically be locked-in for the balance period.
The SEBI has invited feedback on the rule by Dec. 4.
The proposals come as India's primary market activity remains resilient. Over 80 companies have gone public in mainboard IPOs so far this year, making it certain to exceed the record set in 2024.
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