SUMMARY
Go Digit Insurance is of the view that it received the IRDAI nod prior to the issuance of the new circular and may get exempted from the new lock-in regime
Sources said that new IRDAI rules could create challenges for its promoters and ESOP holders as the startup moves ahead with IPO plans
The new rules could subject the startup’s existing investors to a two-year long ‘staggered lock-in’ period if there is a major change in its capital structure
IPO-bound insurtech giant Go Digit has reportedly shot off a letter to the Insurance Regulatory and Development Authority (IRDAI) and sought clarity on new insurance rules that entail an increased lock-in period for its stakeholders if it goes ahead with the planned listing.
Sources told Livemint that the new rules put a spanner in the works for Go Digit Insurance’s market debut and could crop up challenges for its promoters and stock option holders.
At the heart of the matter are the rules notified by the insurance regulator in December last year, which could subject Go Digit Insurance’s existing investors to a two-year long ‘staggered lock-in’ period if there is a major change in the capital structure of a company, in case its IPO plans fructify.
While the previous regime did not have any such compulsions, Go Digit Insurance is said to be of the perspective that since it received the IRDAI nod prior to the notification of the new norms, it was exempt from the new lock-in criteria.
It is pertinent to note that the Fairfax-backed startup received IRDAI nod back in November last year to go public, weeks prior to when the rules came into effect.
Meanwhile, in a statement sent to Livemint, a Go Digit spokesperson, said, “In light of the restrictions under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, we are not permitted to share any information that is extraneous to the DRHP.”
Meanwhile, sources said that the insurtech giant is yet to receive any clarification from regulatory authorities. Sources privy to the development also said that the issue was bogging down the IPO plans of at least three other insurance companies.
While the consensus among industry players is that the regulator will issue a clarification in this regard soon, there were concerns over the new rules, owing to hectic capital market activities undertaken by multiple insurance companies last year.
Another bone of contention appears to be the lack of grandfathering clause in the December 2022 rules, which have also impacted ongoing IPO transactions of insurance companies. Grandfathering refers to exemptions for current and old transactions subject to law and the absence of such rules could have prompted the clarification from Go Digit Insurance.
The circular was formulated to prevent the misuse of new rules, which increased the threshold for promoters to the ones who own a 25% stake in a company as against 10% in the previous regime. The increased lock-in requirements were brought in to balance this relaxation and curb any misuse.
With this, Go Digit Insurance’s IPO plans have hit another roadblock. While it received IRDAI’s nod for a public listing in November 2022, the process was stalled after market regulator Securities and Exchange Board of India (SEBI) put its IPO in abeyance and sent back the offer documents earlier this year. After much back and forth, the company addressed all issues in its draft red herring proposal (DRHP) and filed the documents again earlier this month.
According to its DRHP, Go Digit’s proposed offering includes a fresh issue worth INR 1,250 Cr and an offer for sale (OFS) element of 10.94 Cr equity shares. The startup plans to deploy the proceeds from the debut to expand operations and increase its capital base.
Founded in 2017 by Kamesh Goyal, Go Digit offers insurance policies across segments such as vehicles, health, travel and others. The startup is backed by marquee names such as Sequoia, A91, TVS Shriram and Canadian investor Fairfax.
Go Digit operates in the larger insurance sector, which continues to be marred by lower penetration and a lack of access to such services. While the pandemic-induced growth drove insurance penetration in India to 4.2% in FY21 compared to 3.76% in FY20, the space is still far from serving a big chunk of Indian customers.
According to Inc42, insurtech is projected to emerge as the second biggest sub-sector within fintech, accounting for an addressable market of $307 Bn by 2030.
