The Securities and Exchange Board of India (SEBI) is reviewing Zomato’s draft red herring prospectus (DRHP), the registration document filed by IPO-bound companies, to check whether any control lies with the company’s Chinese backer Ant Group.
The markets regulator is also checking whether post-listing the Ant Group would be issued any bonus shares or rights shares that would require approval under the amended foreign direct investment (FDI) norms for China.
“We are looking at certain aspects, including whether start-ups are controlled by Chinese investors and whether the foreign investor has any controlling interest under the Takeover Code. And, since it (Zomato) is backed by the China-based firm, clarity is needed whether it requires any prior approval or permission under press note 3 of the current regime,” a source told Business Standard, which first reported the development.
Anti Financial has been an investor in Zomato since 2018 when it picked up a 14.7% stake. Its holding in Zomato was increased to 25% last year. Ant has invested around INR 3,243 Cr in the Indian foodtech unicorn. Zomato has raised $2.1 Bn to date, with a $660 Mn round closing in December 2020. The company also raised $250 Mn (over INR 1,800 Cr) in February from Tiger Global, Kora and others, increasing its valuation to $5.4 Bn. You can read more about Zomato’s shareholding structure here.
SEBI defines ‘control’ in a company as having the right to appoint a majority of directors, the right to control the management, and the right to control policy decisions. Such rights are usually exercised by persons or companies holding shares or having contractual rights under a shareholders’ agreement.
Last month, Zomato filed its DRHP for its $1.1 Bn initial public offering (IPO) later this year. According to the prospectus, the company will offer equity shares aggregating up to INR 8,250 Cr (nearly $1.1 Bn). Of this, INR 7,500 Cr will be a fresh issue, while INR 750 Cr will be an offer for sale for its existing investor Info Edge.
Info Edge on April 27 said it will sell shares worth INR 750 Cr in the upcoming Zomato IPO.
In its DRHP, Zomato also revealed that the quarter ended December 2020 (Q3 FY21) was its best-ever in terms of the gross order value (GOV), which breached the company’s pre-Covid numbers. At INR 2,981 Cr, Zomato saw the GOV rise by 7% in Q3FY21 compared to the same period in FY20 when the GOV was INR 2,785.2 Cr.