One concern for the issuer is the disclosure of sensitive information in the DRHP, according to Sebi
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The Securities and Exchange Board of India (Sebi) on Wednesday floated a consultation paper proposing that companies desirous of coming out with an initial public offering (IPO), pending regulatory clearances, shall not be required to disclose all company related information.
Companies can issue an updated draft red herring prospectus (DRHP) after getting regulatory clearances, Sebi said in the consultation paper.
The regulator will seek clarification from the lead managers and will make observations within 30 days from the receipt of reply to clarification/ in-principle approval.
Based on these Sebi observations, an issuer company, if it so desires based on market conditions and its own financial requirements, may then decide to come up with an IPO.
For this purpose, the issuer will have to file an updated DRHP (UDRHP-I), a public document, incorporating all observations provided by the regulator.
Many jurisdictions such as the UK, Canada and the US permit pre-filing of the offer document for review by the regulatory authority. Subsequently, in case the issuer decides to proceed with the offer, the document incorporating changes mandated by the regulator is made available to public.
One of the concerns is the disclosure of sensitive information in the DRHP, which may benefit its competitors, without the certainty that the IPO would be executed, Sebi said.
Another problem is the timing of the public offer in relation to market conditions. Any delay raises questions about the “recency" of comments received from potential institutional investors during roadshows, affecting price and issue size estimates, Sebi said.
Typically after the filing of the DRHP, the document is only available for two-five days before the issue opens. Thus, Sebi’s observations and latest financials are not available in the public domain for long.
The Primary Markets Advisory Committee has considered permitting pre-filing documents with Sebi.
The issuer will have to make a pre-filing to the stock exchanges and the markets regulator without making it public for some time, according to the advisory panel. After stock exchange approval, Sebi’s comments can be incorporated and the issuer can file an updated DRHP.
“Corporations that intend to go public will be instilled with confidence if provisions are made for a partial or preliminary DRHP. When regulatory issues arise after the DRHP is submitted, the IPO procedure is stalled causing companies to suffer. If regulatory concerns are identified in advance and remedied, the time taken for an IPO to go through can be cut greatly," said Nikhil Varma, managing partner, Miglani Varma & Co., advocates, solicitors and consultants.