Companies may soon be able to pre-file IPO papers as Sebi mulls alternative mechanism for regulatory review

Sebi on Wednesday proposed introducing an alternative mechanism for regulatory review by permitting "pre-filing" of offer document for companies contemplating initial public offerings. Under the proposal, an issuer should make "pre-filing" of offer document with Sebi and stock exchanges without making it available for public for an initial scrutiny period only, according to a consultation paper.

The document should contain all disclosures as required currently under the ICDR (Issue of Capital and Disclosure Requirements) Regulations. Generally, the current process for an Initial Public Offering (IPO) entails at least 30 to 70 days after filing of Draft Red Herring Prospectus (DRHP) before the issuer company can access capital markets. Further, the issuer company may choose to not pursue coming out with its IPO after undergoing the process.

Sebi noted that one of the concerns for issuer companies was the disclosure of sensitive information in the DRHP, which may be beneficial to its competitors, without the certainty that the IPO would be executed.

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"Another concern is with regards to timing the public issue vis-a-vis market conditions. Any delay due to such factors results in concerns regarding the 'recency' of the feedback obtained from potential institutional investors during the road shows, thus impacting the pricing as well estimating the issue size," Sebi noted.

Globally, many jurisdictions such as UK, Canada and US permit pre-filing of the offer document for review by the regulatory authority. In the consultation paper, Sebi has suggested that an issuer should make a public announcement stating that it has done pre-filing of offer document with Sebi and exchanges. The issuer company should mention that pre-filing of offer document need not necessarily mean that the issuer will undertake the IPO.

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The issuer and lead managers should also submit an undertaking that it will not undertake any marketing or advertising campaign which refers to its intended IPO or showcases any key performance indicators through any means to public, including social media. Further, stock exchanges should provide in-principle approval on the pre-filed document and Sebi should give its observations on the pre-filed document within 30 days from the receipt of reply to clarification from lead merchant banker or in-principle approval from the stock exchanges.

Pursuant to receipt of Sebi's observations, an issuer, if it so desires based on market conditions and its own financial requirements, may decide to pursue undertaking the IPO. In this regard, the issuer has been suggested to file an updated DRHP, a public document, incorporating all observations provided by Sebi. The updated DRHP should be available on websites of the issuer company, lead merchant bankers, stock exchanges and Sebi for period of at least 21 days for public comments.

The issuer and lead merchant bankers can undertake marketing of the issue only post updated DRHP filing. Further, merchant bankers upon expiry of the period of 21 days should file with Sebi details of the comments received by them or the issuer from the public. It should also submit the consequent changes, if any, that are required to be made in the draft offer document.

The regulator should take note of the changes made to the updated DRHP and subsequently, the issuer may file the RHP, a public document, with the Registrar of Companies, stock exchange(s) and Sebi. The subsequent procedure with respect to price band advertisement/issue opening will remain the same.