SEBI has issued Informal Guidance to Jindal Steel and Power Limited (hereinafter referred to JSPL) and released on SEBI website on January 28, 2019 clarifying the lock-in related provisions in case of preferential issue of convertible warrants under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 [“SEBI (ICDR) Regulations 2009”], which have been replaced with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 [“SEBI (ICDR) Regulations 2018”] now.
Facts of the case:
- Whenever any Company whose equity shares are listed on a recognised stock exchange, issues any new equity shares or any securities which are convertible into equity shares in future, it needs to comply with the Chapter on “Preferential Issue” under SEBI (ICDR) Regulations.
- Many Companies whose equity shares are listed on recognised stock exchange issue share warrants, which are generally unlisted securities. Under SEBI (ICDR) Regulations, these unlisted share warrants must be mandatorily converted into equity shares within a period of 18 months from the date of allotment of warrants, and thereafter the resultant equity shares will be listed on the same recognised stock exchange where existing equity shares are listed, and such stock exchange given Trading Approval for the new shares, post which those can be traded on such stock exchange.
- One of the provisions under this Chapter on “Preferential Issue of shares” under SEBI (ICDR) Regulations is regarding Lock-in of existing equity shares as well as new securities being issued to the allottees. As per the provisions of Regulation 78(6) of the SEBI (ICDR) Regulations, 2009 [erstwhile Regulations], the entire pre-preferential allotment shareholding of the allottees, if any, was to be locked-in from the relevant date upto a period of 6 months from the date of trading approval.
- In these earlier SEBI ICDR Regulations, 2009, in cases of preferential allotment of convertible warrants (where such warrants are not proposed to be listed), it was not clear about what should be the end date of lock-in of existing pre-preferential allotment shareholding of the allottees, if any, i.e., whether it should be locked in till 6 months from the date on which these warrants are converted into equity shares, and then they get listed and get trading approval of shares? [In such cases, if the warrants are converted in the 18th month from the date of their allotment, then the existing pre-preferential allotment shareholding of the allottee gets locked-in for about a period of 2 years or so]
- Hence, certain companies like Kesoram Industries Limited, PC Jewellers Limited, Balasore Alloys Limited had approached SEBI for seeking its Informal Guidance with regard to the periodicity of lock-in in such cases. SEBI had clarified them, by way of Informal Guidance, that in case of allotment of convertible share warrants, which are not proposed to be listed till the get converted into equity shares, the existing pre-preferential allotment shareholding of the allottees, if any, need to be locked-in only till the completion of 6 months from the date of allotment of these warrants.
- Now, under SEBI (ICDR) Regulations, 2018, the
earlier Regulation 78(6) is numbered as Regulation 167(6). In this Regulation,
they have corrected this ambiguity by inserting an additional provision stating that, in case of preferential
allotment of convertible warrants (where such warrants are not proposed to be
listed), the pre-preferential allotment shareholding of the allottees, if any,
shall be locked in from relevant date upto
a period of 6 months from the date of allotment of such securities.
- Jindal steel and
Power Limited (hereinafter referred as “Jindal”) is a Company listed on
National Stock Exchange and Bombay Stock Exchange Limited which had approached
SEBI for an Informal Guidance in this regard.
- Jindal had issued 4,80,00,000 warrants to one Opelina Finance and Investment Limited (“Opelina”), which is one of the promoter/promoter group entity of Jindal, on Preferential basis under the provisions of Chapter VII, i.e., “Preferential Issue” under the SEBI (ICDR) Regulations, 2009 on November 10, 2017.
- Warrants allotted to Opelina are unlisted and are convertible into equity shares of the Company at any time before the expiry of 18 months from the date of issue of the Warrants i.e., by May 09, 2019.
- In view of the ambiguity in end-date of lock-in in case of preferential issue of share warrants (as explained above), Jindal had ensured that the entire pre-preferential allotment shareholding of Opeline is locked-in upto November 30, 2019 (i.e. assuming that the warrants are converted into equity shares on May 9, 2019, and trading approval for the equity shares will be received by May 31, 2019, the 6 months period from the date of trading approval will end on November 30, 2019)
(1) What shall be the periodicity of Lock–in of pre –preferential allotment shareholding of the allottee in this case, i.e., since the preferential allotment was done under the erstwhile SEBI (ICDR) Regulations, 2009, whether the clarifying provision inserted in the new SEBI (ICDR) Regulations, 2018 be applicable to the preferential issues done prior to the date of enactment of SEBI (ICDR) Regulations, 2018?
(2) Whether the pre-preferential holding of the promoters locked-in for a longer period (as mentioned above) be released after completion of period of 6 months from the date of allotment of warrants, in accordance the above mentioned proviso inserted in Regulation 167(6) and as per the Informal Guidance issued by SEBI to other Companies?
Reply by SEBI:
Regulation 78(6) of the ICDR Regulations, 2009 states:
However, taking the same view as was taken while giving Informal Guidances to the other Companies (mentioned above), SEBI has informed that in case of preferential issue of unlisted convertible share warrants (which are not proposed to be listed), the lock-in period shall commence from the relevant date and end on the expiry of six months from the date of allotment of warrants.
2. For the second case / query, i.e., whether the pre-preferential allotment shareholding of the allottees locked-in for a longer period be released after the completion of 6 months from the date of allotment of warrants, SEBI has only re-iterated that since the warrants were issued on November 10, 2017, pre-preferential allotment shareholding of the allottees shall be locked-in from the relevant date upto a period of six months from the date of allotment of warrants.
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