The Securities and Exchange Board of India, or SEBI, has clarified the rules for the sale of unlisted company shares. It said that if an existing shareholder sells such shares through a private deal to not more than 200 buyers in a financial year, the sale will not be treated as a public issue.
The information was provided in a clarification letter issued to IDBI Bank, which had sought SEBI’s view on whether its proposed sale of unlisted equity shares to non-qualified institutional buyers through off-market transactions would be regarded as a public offer under securities laws.
The letter published today says, these transactions are secondary transfers by an existing shareholder and do not constitute an offer or invitation by the company to subscribe to securities. The regulator further clarified that contractual rights such as the right of first refusal (ROFR) available to company promoters can be honoured while carrying out such share transfers.
The regulator added that the transfer can be made through a non-advertised privately negotiated transaction to identified investors, including non-Qualified Institutional Buyer investors, provided the transfer is made up to the prescribed limit of 200 persons in a financial year, so it is not construed as a deemed public issue.
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