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Business News/ Markets / Stock Markets/  Go Digit asks IRDAI for clarity on lock-in

Go Digit asks IRDAI for clarity on lock-in

The insurance company, which is backed by Canadian investor Fairfax, is learnt to have written to the IRDAI seeking clarity.

Sebi had raised objections on Go Digit’s IPO.   (Photo: Mint)Premium
Sebi had raised objections on Go Digit’s IPO. (Photo: Mint)

NEW DELHI : Go Digit General Insurance’s promoters and employee stock option holders are faced with unexpected challenges because of new insurance rules, said people with direct knowledge of the situation.

The insurance company which is backed by Canadian investor Fairfax, is learnt to have written to the Insurance Regulatory and Development Authority (IRDAI) seeking clarity on applicability of lock-in requirements if the company chooses to float an initial share sale, people cited above added.

IRDAI’s 6 October 2022 insurance regulations are at the core of the issue. Earlier this year, Go Digit decided to go for an initial public offering (IPO) and obtained IRDAI approval by 6 December.

However, the IPO went into limbo after markets regulator Securities and Exchange Board of India (Sebi) returned the offer documents on 30 January with some observations. The company rectified the issues pointed out by Sebi and refiled the offer document on 6 April.

One of the new provisions in the 6 December IRDAI circular pertains to applicability of lock-in period. New rules say, whenever there is a major change in the capital structure of an insurance company, the existing investors would be subject to what is called ‘staggered lock-in’. However, the old rules didn’t have any such lock-in requirement.

Go Digit is learnt to be taking a view since it received IRDAI nod before the new rules were notified, the lock-in criteria shouldn’t apply to its investors if the IPO happens. In the absence of any relief from IRDAI, the existing shareholders of Go Digit would be subject to up to two-year of the lock-in period.

An email sent to IRDAI remained unanswered.

“In light of the restrictions under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, we are not permitted to share any information that is extraneous to the DRHP," said Go Digit in response to an email query.

“It is not just specific to Go Digit but at least two or three other insurance companies who had planned capital market offerings last year are facing similar challenges," said a person with direct knowledge of the matter.

People cited above said the company is yet to receive any intimation from IRDAI regarding their query.

“The industry hopes that the regulator will clarify on the matter soon."

As per the new rules, if a promoter or an investor purchases shares during the grant of a registration certificate named R3 by IRDAI, a lock-in period of five years applies. If the investment change is happening up to 5 years from the time of grant of R3 certificate then the lock-in would be 5 years from the time of capital offering or 8 years from the time of grant of R3 certificate, whichever is earlier.

If the same investment change happens 10 years after the grant of R3 certificate then promoter’s stake would be subject to 2-year lock in while existing investor shares will be locked-in for one year, the IRDAI circular said.

Normally, when a regulator or a government department issues new rules, it generally provides for what is called ‘grandfathering’. This basically exempts the existing and old transactions from being subject to the new law. However, in this case the insurance regulator has not provided any grandfathering leaving the ongoing transactions in limbo. “Last one year has been very busy in terms of capital market activities undertaken by insurance companies and hence the companies are generally concerned if the new rules will apply to them or not," said a leading capital market lawyer.

IRDAI had introduced the lock-in period under new rules as a safeguard for a relaxation. In old rules, any entity buying more than 10% stake in an insurance company needed to categorise itself as a promoter. However, under the new rules, the threshold has been increased to 25%. To balance this relaxation and curtail misuse of it, IRDAI introduced the lock-in requirement.

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Updated: 19 Apr 2023, 10:47 PM IST
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