Sebi mulls launch of confidential IPO filings to address privacy concerns

The Securities and Exchange Board of India (Sebi) has mulled introduction of confidential initial public offering (IPO) filings and “pre-filing” of offer documents, a move aimed at giving issuers flexibility and alleviating concerns around privacy.

Industry players said the concept, if implemented, would give a fillip to the domestic capital markets, ease the process and encourage more companies to go public. To be sure, the proposals are still at a discussion stage with Sebi just floating a consultation paper seeking public feedback.

In the paper, Sebi has sought views on introduction of an alternative mechanism for regulatory review of offer documents by permitting pre-filing of offer documents for issuers contemplating IPO. Also, the regulator has asked for feedback on allowing the pre-filing of offer documents with only Sebi and stock exchanges “without making it available for public for an initial scrutiny” which will be akin to the concept of confidential IPO filings.

Global jurisdictions such as the US, UK and Canada allow pre-filing and confidential filing of IPO documents with their respective regulators. In recent years, companies such as Airbnb, Slack, and Uber have reportedly taken the confidential filing route.

The regulator has underscored some of the concerns faced by companies wanting to go public under the current framework.

At present, an issuer has to file a so-called draft red herring prospectus (DRHP) with Sebi. The DRHP is required to have detailed disclosures about the company’s business, financials, competitive landscape and financials. All the DRHPs filed with Sebi are available in the public domain. Typically, Sebi takes more than 30 days to approve or give its final comments on the DRHP. The company is then required to file its RHP before launching its IPO. The timing of the IPO also depends on market conditions.

Currently, the time gap between filing an offer document with Sebi and launching the IPO is months in many cases. Often companies decide to drop the listing plans after filing their documents. Moreover, as the offer document has to make extensive disclosures, there are concerns raised around sharing of sensitive information in the draft red herring prospectus which could benefit competitors without the certainty that the IPO will see the light of the day.

“Pre-filing process would certainly address the sensitivities and concerns of issuers due to the long wait between filing and actual offer launch.  This will encourage many issuers to test waters and evaluate the option for an IPO at an early stage and thereby provide better opportunities to investors,” said Moin Ladha, Partner, Khaitan & Co.

Under the proposed changes, companies will only have to make a public announcement stating that they have done pre-filing of offer documents with Sebi and exchanges. The regulator has said it will provide its observations on the pre-filed document within 30 days. Later, if the issuer decides to go public it will have to update the document with observations provided by Sebi and other latest information beforeing putting it in the public domain.

“The tentative framework proposed, albeit extensive, does appear to be more conducive for both the issuer as well as the investors. The changes proposed by Sebi will, to some extent, assuage the concerns in respect of disclosure of sensitive information in the DRHP. The overall success of this framework will depend on how the process and the timelines are integrated,” said Gaurav Mistry, Partner, DSK Legal.