Sebi: Off-Market Unlisted Share Sales Not Deemed Public Issue

New Delhi, Jul 31 (PTI) Markets regulator Sebi on Friday said the off-market sale of unlisted equity shares by an existing shareholder through private negotiations will not be treated as a deemed public issue, provided the number of purchasers does not exceed the statutory limit of 200 persons in a financial year.

The clarification came in an informal guidance 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.

Sebi, in its informal guidance made public on Friday, said that these transactions are secondary transfers by an existing shareholder and do not constitute an offer or invitation by the company to subscribe to securities. Accordingly, these transfers would not trigger public issue requirements, subject to compliance with the prescribed limit on the number of purchasers.


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 Companies Act does not mandate or restrict the categories of persons to whom the placement/ tansfer can be made by a company, but restricts the number of persons in a private placement. While calculating the number of persons for deciding whether the offer is made to over 200 or not in a financial year, the said provisions allow placement made to QIBs to be excluded.

Hence, the transfer can be made through a non-advertised privately negotiated transaction to identified investors, including non-QIB 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, Sebi added.

IDBI Bank had approached Sebi in May seeking clarity on the regulatory treatment of its proposed divestment of unlisted equity investments through negotiated off-market transactions.