SEBI proposes relaxing offer-for-sale norms, extending exemption of one-year holding period

SEBI has proposed that Regulation 8 proviso to be amended and read to include equity shares received upon conversion of such fully paidup compulsorily convertible securities.

The market regulator has proposed relaxing the offer for sale (OFS) norms. OFS is when the promoter is selling their holdings through a public issue.

Currently, promoters are required to hold their shares for a minimum of one year before they do an OFS to the public. Only promoter holdings acquired following a scheme approved by judicial or governmental orders were exempt from this requirement.

In a consultation paper floated on March 20, the Securities and Exchange Board of India (SEBI) has suggested that this exemption be extended even to equity shares that were acquired in the conversion of fully paid-up compulsorily convertible securities acquired following such a scheme (that was approved by judicial or governmental orders). This has been suggested because there has been some ambiguity around this and also because it would bring it in line with the minimum promoters' contribution (MPC) norms.

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Under current provisions, the holding period of all convertible securities is one year.

Current regulations

As per Regulation 8 of ICDR Regulations:
Only such fully paid-up equity shares may be offered for sale to the public, which have been held by the sellers for a period of at least one year prior to the filing of the draft offer document:
Provided that in case the equity shares received on conversion or exchange of fully paid-up compulsorily convertible securities including depository receipts are being offered for sale, the holding period of such convertible securities, including depository receipts, as well as that of resultant equity shares together shall be considered for the purpose of calculation of one year period referred in this sub-regulation.

An exemption to the one year holding period is given thus:
b) if the equity shares offered for sale were acquired pursuant to any scheme approved by a High Court or approved by a tribunal or the Central Government under the sections 230 to 234 of Companies Act, 2013, as applicable, in lieu of business and invested capital which had been in existence for a period of more than one year prior to approval of such scheme;”

Proposal

SEBI has proposed that Regulation 8 proviso to be amended and read to include equity shares received upon conversion of such fully paidup compulsorily convertible securities, thereby extending the exemption from the requirement of the minimum holding period of one year to such fully paid-up compulsorily convertible securities.