SEBI To Notify Confidential IPO Filing Mechanism Soon

As several startups have back-rolled their IPO plans amid market uncertainty, the Securities and Exchange Board Of India (SEBI) mulled a confidential IPO filing mechanism for companies to test waters before jumping in. The market regulator is now looking to notify the final framework of the mechanism soon.

The confidential IPO filing mechanism will allow companies to market their issues to institutional investors to measure demand for the IPO and arrive at fair pricing. It will also provide immunity to companies that finally don’t go for an IPO considering a detailed prospectus opens them to undue litigations, competition analysis and other excessive scrutiny.

Thus, the final framework of the confidential IPO filing is expected to include a ‘test the water’ (TTW) clause. The TTW option will allow the IPO-bound companies to file a pre-filed DRHP (P-DRHP) to engage in oral or written communication with potential institutional investors to understand their interest in the offers.

The P-DRHP will carry no extraneous information, a cool-off period will be provided to these companies to avoid full-fledged marketing and the offer managers and bankers will have to disclose all TTW interactions to SEBI to enable it to issue observations.

According to a Business Standard report quoting legal experts, the new route, which is optional to companies, will help reduce unwarranted public scrutiny. It is also likely to assuage concerns of opportunistic litigations on IPO-bound companies.

It is noteworthy that the SEBI had first considered the confidential filing option in May 2022. SEBI’s Primary Market Advisory Committee (PMAC) had reflected on the matter and considered permitting a ‘pre-filed’ document with SEBI.

It had then added that the mechanism would include flexibility for the issue size, changes in promoters or directors, issuance of convertible securities and issuance of new shares to existing or new investors till the time of filing the final DRHP.

Confidential filing is a famous IPO mechanism available to companies in the US and Canada.

The need for the same in India arises as several startups’ IPOs have failed to deliver their promise on the public markets. Owing to the constant public scrutiny and ‘unfavourable market conditions’, many IPO-bound startups have either delayed going public (despite SEBI’s approval) and many did not move beyond the DRHP filing stage.

Some names include B2B ecommerce startup Udaan, hospitality startup OYO, D2C wearables startup boAt, fintech MobiKwik and more.

According to reports, Tata Play Services will be the first company to test the confidential IPO mechanism as it looks to raise INR 2,000 Cr – INR 2,500 Cr from its public listing.