The SEBI (Disclosure and Investor Protection) Guidelines, 2000 ("Guidelines") have been amended by SEBI vide its Circular dated 16th October 2006 pursuant to which the norms for placements to domestic and foreign venture capital investors by companies prior to their Initial Public Offers ("IPOs") have been tightened.
Initially, the pre-issue shares of an unlisted company making an IPO were required to be locked-in for a period of one year, unless the same were held by Venture Capital Funds ("VCFs") and Foreign Venture Capital Investors ("FVCIs") registered with SEBI.
With a view to restrict the benefit of this exemption and introduce further transparency and efficiency in the Indian primary market, VCFs and FVCIs would now be required to hold the pre-issue shares of such unlisted companies for a period of not less than one year as on the date of filing the draft prospectus with SEBI and would accordingly be prohibited from selling their shares in the unlisted companies prior to expiry of the said one year period.
Further convertible instruments that have been issued to VCFs or FVCIs would also be subject to the one-year lock in period. If the shares held by such VCFs or FVCIs have been acquired on conversion of convertible instruments any time prior to the date of filing the prospectus with SEBI, the period during which the convertible instruments were held by the VCFs or FVCIs as fully paid up, would be included for the purpose of computation of the one-year period.
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