Warrant Conversion Breaching 5% Limit Triggers Open Offer | SEBI

Informal Guidance No. SEBI/HO/CFD/PoD1/OW/P/2025/31/26/1, Dated: 12.12.2025

The Securities and Exchange Board of India (SEBI) has issued informal guidance on the conversion of equity share warrants by promoters and its implications under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations).

1. Background of the Query

A company sought clarification on whether conversion of equity share warrants held by promoters would trigger open offer obligations, particularly where such conversion results in an increase in shareholding.

2. Applicability of Creeping Acquisition Limit

Under the SAST Regulations:

• Promoters are permitted to acquire up to 5% additional voting rights in a financial year without triggering an open offer (commonly referred to as the creeping acquisition limit).

SEBI clarified that:

• If the conversion of warrants results in acquisition beyond the 5% limit, it would trigger open offer obligations.

3. Trigger of Open Offer Obligation

The obligation to make an open offer would arise under:

• Regulation 3(2) (creeping acquisition threshold), read with
• Regulation 3(3) (timing and aggregation provisions)

This applies irrespective of intermittent changes in shareholding during the financial year.

4. Key Clarification

SEBI emphasised that:

• The end-result of acquisition during the financial year is relevant for determining compliance
• Interim fluctuations or reductions in shareholding do not negate the requirement if the net acquisition exceeds the prescribed threshold

5. Implications for Promoters

Promoters must:

• Carefully monitor aggregate shareholding changes during the financial year
• Consider the impact of warrant conversions and similar instruments
• Ensure compliance with open offer requirements if thresholds are exceeded

6. Objective of the Clarification

The guidance reinforces SEBI’s intent to:

• Prevent circumvention of takeover regulations through structured transactions
• Ensure transparency and fairness in acquisition of control or substantial shares
• Protect the interests of minority shareholders through mandatory open offer provisions.

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