SEBI Tightens IPO Disclosure Norms For Faster Clearance

Capital markets regulator Securities and Exchange Board of India (SEBI) has mandated companies looking to go public to share more information to pace up public offerings in the primary market.

According to Business Standard’s report, SEBI will now seek additional information from lead managers (LMs) when they file draft documents.

SEBI’s additional disclosure requirements include details about pre-IPO placements, shareholders, previous agreements, and ESOP (employee stock ownership plan) allottees.

Last week, SEBI sent a letter to bankers, listing over two dozen new disclosure requirements. The average time it takes for SEBI to clear the DRHP has dropped to less than three months in 2024, until May 31st, the report added.

Since the start of this year, over 45 IPO applications have been filed, with only nine approved. The average approval time was 87 days. However, nearly half a dozen of these applications were either withdrawn or rejected, as per PRIME Database cited by Business Standard. 

“With these additional disclosures, the time taken to process IPO applications may decrease but the level to which these granular details have been sought may increase the preparatory work needed by merchant bankers before filing the DRHP,” a legal expert told Business Standard.

Under the new guidelines, lead managers must ensure that ESOP allottees are solely employees. They must disclose the price and name of any shareholder on the day of allotment in case of pre-IPO placements. 

If over 50% of supplies or revenue come from the top 10 suppliers or customers, their names must be disclosed. Additionally, details of arrangements like acquisitions, mergers, and slump sales, including valuation and any relationship with promoters or directors, must be provided, the report said.

LMs must ensure no conflicts of interest exist between suppliers, third-party service providers, and the company or promoters. If a company raises funds between the DRHP and RHP, those funds must be used for disclosed purposes, with an auditor certifying any deviation. 

SEBI may request additional details from merchant bankers after an IPO filing, and companies can submit addenda based on regulator queries. While this approach aims to expedite document processing, it may entail more paperwork and time for companies filing their DRHPs.

This development comes a month after the markets regulator prohibited market infrastructure institutions (MIIs), including stock exchanges, depositories and clearing corporations, from sharing real-time share price data with fantasy trading platforms that gamify stock trading.

In May alone four major startups have joined the IPO spree. 

B2B travel portal Travel Boutique Online, also known as TBO Tek, made its public market debut with a premium of over 50%. 

Meanwhile, Go Digit, which initiated its IPO in mid-May, garnered a subscription of 9.6 times on the final day of bidding on May 17th.

Peak XV-backed coworking space provider Awfis also launched its INR 599 Cr IPO on Wednesday (May 22).

Meanwhile, in the same month, the parent company of online travel aggregator (OTA) ixigo, Le Travenues Technology Ltd, has received approval for its INR 120 crore plus initial public offering (IPO) from the Securities and Exchange Board of India (SEBI).