SEBI Mulls Over Confidential IPO Filing in India – Helps or Hurts?

Confidential IPO filing in India

SEBI is planning to come up with a new IPO policy that is confidential IPO filing in India. While over 70 companies have filed their draft paper for IPOs in India during the year 2022, about 30 companies have already floated their IPOs.  Tata Play (the DTH company of the TATA group) may be one of the first companies to file a confidential IPO. Globally, countries including the United States and Canada allow a confidential pre-filing with regulators before a company decides to proceed with an IPO.

What is confidential IPO filing in India?

While SEBI is yet to come up with the final process of the confidential IPO filing, the market regulator has issued a consultation paper on the Pre-filing of Offer Documents in case of Initial Public Offerings for public comments.

The concept of confidential IPO filing came in the year 2012 in the United States. The aim was to increase the number of public offerings, and to provide more support to small companies that are looking to go public.

The current IPO filing process in India

In the current IPO filing process in India, companies have to file DRHP with SEBI with all the relevant disclosures mandated by SEBI. The disclosures such as financials, expansion plans, about customers, etc. The document is available on the SEBI platform and on the lead managers platform for public comments or understanding. These documents used to be there for 21 days.

After that SEBI gives in-principle approval for the listing of securities. Within the above 21 days, SEBI may seek any clarification from the companies.

SEBI issues observations within 30 days of receiving clarification/ in-principle approval. Post this, the companies may proceed with the filing of the red herring prospectus (RHP) with the Registrar of Companies (RoC).

The company can disclose the price band with the advertisement after the filing of RHP. The IPO Issue used to open at least 2 days after the advertisement.

According to the SEBI document, the above process takes approximately 30-70 days to complete after filing the DRHP document with SEBI. Even after the process is complete an issuer company may opt to cancel its IPO.

However, during the current IPO filing process in India, sensitive information about the company is available to the public and competitors can take advantage of that. Competitors gain insights into the firm’s operations, products, and financial condition and leverage it to their benefit.

Confidential IPO filing Process in India

The market regulators in many countries such as the UK, USA, Canada, etc. permitted the pre-filing of the offer document for review by the regulatory authority. After the process is complete, if the issuer company prefers to proceed with the IPO, the documents can be made public.

This will give the required protection to issuing companies contemplating an IPO from the disclosure of business-sensitive information to competitors. The confidential filing provision helps IPO aspirants significantly reduce the time available for outsiders to leverage the information.

The new process will help Issuer companies in “pre-filing” offer documents with SEBI and Stock Exchanges without making them available for the public for an initial scrutiny period only. This document shall contain all disclosures as required currently under ICDR Regulations.

During the period of scrutiny, the issuer company cannot undertake a marketing or advertising campaign that refers to its intended IPO or showcases any key performance indicators through any means to the public including social media.

Confidential IPO filing in India – helps or hurts!

This will address the concerns raised by market participants and industry players about the leakage of sensitive information about the company to its competitor. These steps will be useful for new-age companies or start-ups which are loss-making companies or may not want to disclose sensitive information about their strategies to competitors.

According to an SEC filing, IPOs finance has significance to job creation. While pre-IPO employment growth used to be 8 percent, post-IPO employment growth was about 91 percent. The new process by SEBI will encourage more companies to mull public listing.

With confidential IPO filing in India, companies will have more flexibility with a public offering as they do not have to set a fixed date. The firms can even walk away with the public offering without worrying about public scrutiny or sensitive information shared. They can be able to get ready for a public offering at their speed with confidential IPO filing.

However, there will be only 15 days for the retail investors to assess the value of the IPO firm. Again, the IPO companies will also be under strain to process the advertising and generate plenty of buzz leading up to the offering. Hence, confidential IPO filing in India may also hurt the IPO companies by underpricing their IPOs. The company is planning to get venture capital for its business or find investors for its business to finance its growth, subdued IPO pricing may hurt its growth plan.

“An IPO that is underpriced means the company has less money to make investments and grow. Anything that hurts the company hurts the investor, as well.” –Burcu Esmer

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