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Sebi raises bar, sends back IPO documents

March 9, 2023 

Sebi had drawn flak for taking too much time to greenlight documents for IPOs.

The Securities and Exchange Board of India (Sebi) has, in the last two months, returned at least half a dozen offer documents to investment bankers or companies involved with the initial public offerings (IPOs).

These include offer documents of Oravel Stays, the parent company of travel-tech firm OYO and Go Digit General Insurance, a firm backed by Canada-based Fairfax Group. On Friday, Sebi returned offer documents of Pune-based integrated facilities management company BVG India, and Fincare Small Finance Bank, which had refiled its draft prospectus with the regulator in August last year.

“While the reasons for returning the offer documents may be company-specific, Sebi wants the documents to be fully compliant at the time of filing. In general, any material update or change has to be incorporated in the draft red herring prospectus and refiled,” said a banker familiar with the matter.

Earlier, there used to be a lot of back and forth between the market regulator and the investment bankers on corrections and amplifications required for the draft prospectus — with the regulator asking for missing details and the bankers subsequently furnishing the replies.

Now, it is returning the documents to bankers instead of letting them remain in the processing stage for an indefinite period of time, said industry players. Earlier, companies themselves chose to withdraw the offer document if a significant time elapsed after filing.

Sebi had drawn flak for taking too much time to greenlight documents for IPOs. The average time lag between filing an offer document with Sebi and receiving approval in 2022 surged to 115 days, the highest in eight years, according to reports.

“There are certain cases where companies through the banks have been seeking certain exemptions, which the regulator has been uncomfortable with giving. For instance, Sebi has been frowning upon giving exemptions to family members from being included in the promoter group. Such offer documents are being returned,” said a second banker, on condition of anonymity.

“Given the way market has behaved, Sebi has turned a bit cautious in approving new offerings. Several new-age companies that have filed the offer documents are not meeting Sebi’s requirements on disclosures and valuations. Thirdly, given the flurry of filings in the recent past, it is possible that the quality of work put in while compiling the offer documents has slipped a bit at the bankers’ end,” said a third banker.

An email sent to Sebi did not immediately get a response.

Oyo had filed its draft prospectus for the IPO with Sebi in September 2021 and was aiming to raise Rs 8,430 crore. However, it later requested the regulator to delay the process as the market mood wasn’t quite favourable. After the company updated the numbers in November, the regulator asked Oyo to refile the document updating all the relevant sections such as risk factors, KPIs, outstanding litigations, and basis for offer.

Go Digit, which counts cricketer Virat Kohli and actor Anushka Sharma as investors, said last month the ICDR rules exempt rights granted under employee stock option plans to subsist at the time of filing the draft prospectus, but do not similarly exempt employee stock appreciation rights. The company said it was evaluating amendments to its employee stock appreciation rights scheme and would refile its draft prospectus with Sebi in due course.

Sebi had earlier said that most delays while clearing an offer document happened at the investment bankers’ end and that it was their responsibility to provide adequate information pertaining to the offerings.

Addressing a closed door meeting of investment bankers in December, Sebi chairperson Madhabi Puri Buch had said the regulator was keen on cutting the red-tape involved in the filing of offer documents and is working on streamlining the process for regulatory clearance. Buch also said the bankers ought to exercise their own professional judgment while arriving at valuations for a company rather than succumb to pressure from promoters.

The regulator has been pushing for greater transparency on the pricing of IPOs. Issuers now have to disclose details of pricing of shares based on past transactions and past fund raising from investors based on secondary sale or acquisition of shares, during the 18 months period prior to IPO.

[The Financial Express]

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