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SEBI approved easing lock-in norms for pledged pre-IPO shares held by non-promoters
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Depositories must record pledged shares as locked-in and enforce lock-in after pledge changes
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Invocation of pledge locks shares in pledgee’s account for the remaining lock-in period
The Securities and Exchange Board of India on Wednesday approved changes to 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 received feedback 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.
In this regard, the SEBI has approved an amendment to regulations to prescribe that in case of lock-in of shares, the depositories shall record such securities in the demat account of the pledgor as locked-in securities.
The depositories shall ensure that subsequent to the invocation or release of pledge, the shares in the account of the beneficiary (pledgee) are required to be locked-in automatically for the balance period.
The new procedure will ensure compliance with the requirement of lock-in of certain shares even when they are pledged, the SEBI said.
What Changes?
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 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.
(Image: SEBI)
(Image: SEBI)
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," according to the SEBI consultation paper.
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