New Delhi : Promoters and employee stock option holders of Go Digit General Insurance are facing unprecedented challenges due to the new insurance rules, people with direct knowledge of the situation said.
The insurance company backed by Canadian investor Fairfax has written to the Insurance Regulatory and Development Authority of India (IRDAI) seeking clarity on the applicability of lock-in requirements if the company chooses to float the initial share sale, said the people cited above.
IRDAI’s Insurance Rules dated 6 October 2022 are at the core of the issue. Earlier this year, GoDigit decided to go for an initial public offering (IPO) and received IRDAI approval by December 6.
However, the IPO went into limbo after market regulator Securities and Exchange Board of India (SEBI) returned the offer documents with some observations on January 30. The company rectified the issues pointed out by SEBI and re-filed the offer document on April 6.
One of the new provisions in the IRDAI circular dated December 6 pertains to the applicability of the lock-in period. The new rules say, whenever there is a major change in the capital structure of an insurance company, existing investors will be subject to ‘staggered lock-in’. However, there was no such lock-in requirement in the old rules.
Since GoDigit got IRDAI’s nod before the new rules were notified, it has learned that the lock-in norm should not apply to its investors if the IPO happens. In the absence of any relief from IRDAI, existing shareholders of Go Digit will be subject to a lock-in period of up to two years.
An email sent to IRDAI remained unanswered.
In response to an email query, Go Digit said, “In light of the restrictions under the amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, we are not permitted to share any information that is outside the DRHP.” Are.”
“It is not just Go Digit, but at least two or three other insurance companies that had planned capital market offerings last year,” said a person with direct knowledge of the matter.
The people cited above say that the company is yet to receive any communication from IRDAI regarding their query.
“The industry expects the regulator to clarify on the matter soon.”
As per the new rules, if a promoter or investor buys shares during the grant of registration certificate called R3 by IRDAI, a lock-in period of five years is applicable. If the investment conversion is taking place up to 5 years from the time of grant of R3 certificate, then the lock-in capital will be 5 years from the time of offer or 8 years from the time of grant of R3 certificate, whichever is earlier.
The IRDAI circular states that if the same investment changes 10 years after the R3 certificate is granted, the promoter’s share will be subject to a lock-in of 2 years, while the existing investor’s shares will be locked-in for one year. Will be
Generally, when a regulator or government department issues new rules, it is generally referred to as ‘grandfathering’. It basically exempts 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 transaction in limbo. A leading capital market lawyer said, “The last one year has been very busy in terms of capital market activities by insurance companies and hence companies are generally worried whether the new rules will apply to them or not.”
IRDAI had introduced the lock-in period as a safeguard for exemptions under the new regulations. In the old rules, any entity buying more than 10% stake in an insurance company was required to classify itself as a promoter. However, under the new rules, the limit has been raised to 25%. To balance this exemption and reduce its misuse, IRDAI introduced the lock-in requirement.
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