IPO Watch: SEBI may relax rules on public issue, pre-filing of floats

G Business is ahead of the curve in bringing all the news related to the initial public offering (IPO) and its latest newsbreak has once again proved to be correct. The channel first broke that the Securities and Exchange Board of India (SEBI) was planning to bring a discussion paper on public issues.

On Wednesday, the market regulator issued an advisory on ‘Pre-filing of offer documents in case of initial public offering (IPO)’.

The market regulator will probably relax the rules for filing before the draft paperwork for an IPO.

Companies will be able to get comments from SEBI even after filing an unofficial draft red herring prospectus (DRHP).

Market regulators may allow companies to file an informal DRHP before filing an official DRHP. The content of the unofficial DRHP 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 soon.

Exchanges are required to comment on pre-filing of draft documents.

Companies need to be informed that they will receive information in the pre-filing.

The move by SEBI comes in the wake of some concerns raised by companies willing to file an IPO.

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The concerns raised by the companies are:

1) Generally, the issuing company incorporates the above process at least 30 to 70 days after filing DRHP before it can enter the capital market (depending on various factors). In addition, an issuing company may choose not to bring its IPO through the above process.

2) It has been gathered that one of the concerns for issuing companies is the disclosure of sensitive information in DRHP, which may be beneficial to its competitors, without the assurance that the initial public issue will be made.

3) Another concern is the timing of public issues with market conditions. Any delay due to such reasons raises concerns about the “recurrence” of feedback received from potential institutional investors during the roadshow, thus affecting pricing as well as issue size estimates.

4) It is also argued that after filing RHP, the document is usually only available for 2-5 days before opening the issue. As such, updated information on investor spending (which includes SEBI monitoring and the latest financing) has not been available in the public domain for a significant period of time.

5) Globally, many jurisdictions, such as the UK, Canada and the US, allow pre-filing of offer documents for review by regulatory authorities. Subsequently, if the issuer decides to proceed with the offer, the document is made available to the public, including mandatory changes by the regulator.

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