IPO Watch: SEBI may relax rules on pre-filing of public issues, floats consultation paper; Zee Business newsbreak hits bull’s eye

Zee Business has been ahead of the curve in bringing all the news related to the Initial Public Offering (IPO) and its latest newsbreak has been proved correct, yet again. The channel was first to break that the Securities and Exchange Board of India (SEBI) was planning to bring a discussion paper on public issues.

The market regulator on Wednesday floated a consultation paper ‘Pre-filing of Offer Document in case of Initial Public Offerings (IPO)’.

The market regulator will likely be relaxing rules on pre filing of the draft papers for the IPO.

The companies will be able to take comments from SEBI even after filing informal Draft Red Herring Prospectus (DRHP).

The market regulator could give the facility to companies on filing of informal DRHP before filing a formal DRHP. The contents in the informal DRHP will and any information related to it will be between the company and SEBI.

The company will then file a formal DRHP with SEBI as per the comments made by the regulator.

A decision on this is expected to come soon.

Exchanges will also be required to give their comments on pre-filing of draft papers.  

The companies will have to inform about information they get in the pre-filing.

The move from SEBI is inview of certain concerns raised by the companies who wish to file for IPOs.

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The concerns raised by companies are:

1) Generally, the above process entails atleast 30 to 70 daysafter filing of DRHP(based  on  various  factors)before  the  issuer  company  can  access  capital markets. Further, an issuer company may choose to not pursue coming out with its IPOafterundergoing the above process.

2) It  is  gathered  that  one  of  the  concerns  for  issuer  companies  is  disclosure  of sensitive  informationin  the  DRHP,  which may  bebeneficial  to  its  competitors, without the certainty that the initial public issuance would be executed.

3) Another  concern  is  with  regards  to  timing  the  public  issue  vis  a  vis  market conditions.  Any  delay  due  to  such  factors  results  in concerns regarding  the“recency” of the feedback obtained from potential institutional investors during the roadshows,thus impacting the pricing as well estimating the issue size.

4) It  is  also  argued  that  upon  filing  of  RHP,  the  document  is  typically  available  for only  2-5  days before  the  issue  opens.  Thus,  updated  information  (which  has incorporated   SEBI   observations   and   latest   financials) for   consumption   of investors is not available in public domain for a significantly longer period of time.

5) Globally, many jurisdictions such as UK, Canada and US permit pre-filing of the offer document for review by the regulatory authority. Subsequently, in case the issuers  decides  to  proceed  with  the  offer,  the  document  incorporating  changes mandated by the regulator is made available to public.