SEBI issued an informal guidance to Kesoram Industries Limited (Querist) in relation to queries regarding lock-in requirements applicable to Optionally Convertible Redeemable Preference Shares (OCRPS) issued under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. The Querist had made a preferential allotment of OCRPS to a non-promoter allottee, which were convertible into equity shares at the allottee’s option within 18 months from the date of allotment. The OCRPS and the equity shares pursuant to conversion of the OCRPS are freely transferrable, subject to applicable law. The OCRPS are not listed on any stock exchange. The Querist sought SEBI’s opinion on whether the lock-in period applicable to the unlisted OCRPS commenced from their date of allotment and ended one year from such date, and whether the OCRPS could be transferred before completion of the one year period if there is no conversion.

SEBI referred to Regulation 78(2) of the ICDR Regulations which states that specified securities allotted to persons other than promoters, have to be locked in for one year from the date of trading approval. Consequently, the OCRPS, which are specified securities under the ICDR Regulations, have to be locked in for one year from the date of trading approval. However, as SEBI stated, the requirement of trading approval will not apply to convertible securities, i.e., if the allottee does not intend to list the OCRPS within 18 months from the date of allotment, the lock-in would start once the OCRPS are allotted. Accordingly, SEBI held that for unlisted OCRPS, the lock-in period begins from the date of allotment of the OCRPS and ends a year from such date. Further, SEBI held that the OCRPS cannot be transferred before the end of the one year lock-in period if they have not been converted into equity shares.

Although an informal guidance is limited to the facts of the particular case, SEBI’s opinion would help clear the air in relation to the applicability of lock-in period in case of convertible securities. If the convertible securities are not proposed to be listed, the question of trading approval would not arise. Accordingly, parties can freely transfer such securities post the one year lock-in period considered from the date of allotment, subject to applicable law.