SEBI on Wednesday proposed an alternative mechanism for regulatory review, allowing “pre-filing” of offer documents for companies considering initial public offers.
Under the proposal, an issuer should “pre-file” the offer document with SEBI and the stock exchange, not only making it available to the public for a preliminary scrutiny period, according to a consultation.
The document should contain all disclosures required under the ICDR (Issue of Capital and Disclosure Requirement) regulation.
Typically, the current process of an initial public offering (IPO) is at least 30 to 70 days after the issuing company files a draft red herring prospectus (DRHP) before it can enter the capital market. In addition, the issuing company may choose not to bring its IPO through the process.
SEBI noted that one of the concerns of issuing companies was the disclosure of sensitive information to DRHP, which could be beneficial to its competitors, without the assurance that the IPO would be effective.
“Another concern is the timing of public issues with market conditions. Any such delay due to such factors raises concerns about the ‘resilience’ of feedback received from potential institutional investors during the road show, thus affecting pricing as well as issue size estimates, “Sebi noted.
To allay concerns, the Primary Market Advisory Committee (PMAC) has discussed the matter and favored Sebi to allow “pre-filed” documents.
The Securities and Exchange Board of India (SEBI) has asked the public to comment on the proposal by June 6.
Globally, many jurisdictions, such as the UK, Canada and the US, allow pre-filing of offer documents for review by regulatory authorities.
In the consultation paper, SEBI suggested that an issuer should make a public declaration that it has pre-filed the offer document with SEBI and the Exchange. The issuing company should note that the pre-filing of the offer document does not mean that the issuer will accept the IPO.
Issuers and lead managers must also submit a commitment that it will not promote any marketing or advertising that points to its intended IPO or displays any key performance indicators to the public through any medium, including social media.
In addition, stock exchanges must provide policy approvals in pre-filed documents and SEBI must submit its observations in pre-filed documents within 30 days after receiving a reply from the Lead Merchant Banker or within 30 days of receiving policy approval from the stock. Exchange
According to Sebi’s observations, an issuer may decide to accept an IPO if it wants to, based on market conditions and its own financial needs.
In this regard, the issuer is advised to file an updated DRHP, a public document, which includes all observations provided by SEBI. The updated DRHP must be available for at least 21 days for public comment on the issuing companies, lead merchant bankers, stock exchanges and SEBI websites.
Issuers and lead merchant bankers can only market the issue after an updated DRHP filing.
Further, merchant bankers should file the details of the comments received by the issuer from them or from the public after the expiry of 21 days. The draft offer needs to be documented, if any, then the resulting changes must also be submitted.
The regulator should note the changes to the updated DRHP, and subsequently, the issuing company may file a public document with the Registrar of Companies, the stock exchange (s) and RHP to SEBI.
The next procedure for opening a price band ad / issue will be the same.