Home › Help › Blog › Corporate law › Confidential IPO Filing : An Overview

Confidential IPO Filing : An Overview

---

SEBI has recently notified the SEBI (ICDR) (Fourth Amendment) Regulations, 2022. Through this amendment, SEBI introduced an optional alternative mechanism of “pre-filing” of offer document with SEBI in case of Initial Public Offer on the Main Board.

Under this mechanism, the DRHP (containing vital information about the company’s business and financials) is made available only to the regulator and not to the public at large. This would help companies to explore the IPO listing option without undergoing the public scrutiny. Withholding of sensitive information would also allay the apprehension of any undue advantage taken by the competitors of the issuer company (especially in the case of the new age growth companies).

The Existing Process

Currently any issuer company, desirous of coming out with an IPO on the Main Board, is required to go through the following process:

• First, the issuer is required to file a draft red herring prospectus (DRHP) with SEBI and Stock Exchanges through the lead manager.
• Subsequent to the filing of DRHP,
  • The DRHP is made available in the public domain for at least twenty-one (21) days for the purpose of seeking public comments.
  • an issuer can also undertake publicity and marketing activities for its issue in terms of Schedule IX –which prescribes different norms for Public Communications and Publicity Materials for issuers. Research reports are also published based on the information available in the DRHP.
  • As part of the review process, SEBI can seek clarification on the DRHP from the lead manager.
  • Stock Exchanges are required to provide in-principle approval for the IPO and intimate the same to SEBI.
  • SEBI issues its Observation Letter within 30 days of receipt of satisfactory reply to the clarifications sought or receipt of in-principle approval of Stock Exchange, whichever is later.
• An issuer can tap the market within one (1) year from the date of the Observation Letter, by filing an updated DRHP (UDRHP) incorporating the observations issued by SEBI.
• The issuer proceeds with filing of Red Herring Prospectus (RHP) with Registrar of Companies (RoC). Issuer is required to make price band advertisement after RHP but at least two days before issue opening.
• The issue is kept open for a minimum period of 3 days. Upon successful completion of issue, the issuer files prospectus with SEBI and RoC.

Notified Amendments

Through the notified amendments, a new chapter IIA has been added to the SEBI (ICDR) Regulations, 2018. This chapter provides for an optional and alternative mechanism of filing offers documents.

Under this mechanism,

• First, the issuer company has to file the pre-filed draft offer document with the SEBI and the stock exchanges through its lead manager.
• Subsequent to the filing of pre-filed draft offer document,
  • The pre-filed draft offer document will not be made available to public. However, a public announcement has to be made about the fact of filing of pre-filed draft offer document within two (2) days.
  • The issuer can interact with the qualified institutional buyers (QIBs) for limited marketing of the intended issue from the time of pre-filing the draft offer document till the Board issues the Observation Letter.
  • SEBI issues its Observation Letter on the pre-filed draft offer document.
  • Thereafter the issuer company is required to file an updated draft red herring prospectus-I (UDRHP-I) after complying with the observations of the SEBI.
  • This UPDRHP-I is made available in the public domain for at least twenty-one (21) days for the purpose of seeking public comments.
  • After incorporating the consequential changes on account of the public comments, the issuer company is required to file an updated draft red herring prospectus -II (UDRHP-II).
• An issuer can tap the market within eighteen (18) months from the date of the Observation Letter issued by SEBI. However, the issuer is required to file UDRHP-I within sixteen (16) months from the date of the Observation Letter.

Comparison of existing mechanism with the new mechanism

Sl. No.		Existing				Pre-filing
1.		Filing of DRHP with SEBI. Document available in public domain.				Filing of pre-filing draft offer document with SEBI. Document not available in public domain.
2.		Receipt of SEBI’s Observation Letter.				Receipt of SEBI’s Observation Letter.
3.		Filing of UDRHP (incorporating SEBI’s observations). Document not available in public domain.				Filing of UDRHP-I(incorporating SEBI’s observations). Document available in public domain.
4.						Filing of UDRHP-II with SEBI (incorporating public comments) Document not available in public domain
5.		IPO within 12 months from SEBI’s observation letter.				IPO within 18 months from SEBI’s observation letter.

Concluding Remarks

The amendments by SEBI would be beneficial for the companies to explore the option of listing without undergoing public scrutiny. Past records show that many companies have opted out of the IPO despite filing the DRHP. Moreover, the provisions of confidential filings are also available in foreign jurisdictions like US, UK and Canada.

Except for the marginal delay and additional cost, the optional route of confidential IPO filing does not have any other disadvantage. Moreover, the substantial benefits on account of withholding sensitive information and flexibility to choose the IPO timing far outweighs the marginal cost and time impacts.