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Regulatory Alert - Lock-in relaxation for pre-IPO shares held by Category II Alternative Investment Funds (AIF)

02 August 2017

The Securities Exchange Board of India (‘SEBI’) vide a notification dated 31 July 2017, has amended Regulation 37 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009 (‘ICDR Regulations’) to relax the lock-in period in relation to shares held by Category II AIFs in the company going for an Initial Public Offering (‘IPO’).


The SEBI (ICDR Regulations) mandate post-IPO 1 year lock-in period for entire pre-IPO shares held by non-promoter shareholder. The Category I AIF shareholders are exempted from this provision, provided such equity shares are held by them for a period of atleast 1 year from the date of purchase. In calculating this period of 1 year, where pre-IPO equity shares are  a result of conversion of fully paid-up compulsorily convertible securities, then the period of holding of such convertible securities is also to be included.

The amendment

Vide notification dated 31 July 2017, the benefit of above-mentioned relaxation from lock-in period available to Category I AIF is extended to Category II AIF as well. As a result, pre-IPO equity shares held by Category II AIF will not be subject to any lock-in, provided such equity shares (or relevant fully paid compulsorily convertible securities) are held by them atleast for a period of 1 year.

BDO comment

This change puts Category II AIFs at par with Category I AIFs and Foreign Venture Capital Investor (‘FVCI’) in relation to relaxation of lock-in period. This amendment would encourage more pre-IPO private equity investments by Category II AIFs as it brings exit flexibility for them.