Sebi roll backs diktat on annulment of special rights to PE players

Special rights will now be cancelled at the time of listing instead of at the time of filing offer document

The Securities and Exchange Board of India (Sebi) on Monday rolled back its diktat on annulment of special rights granted to private equity (PE) players before filing for public offers.

The decision follows concerns raised by PEs and investment bankers against a 21-point additional disclosure mandate for IPOs issued by the regulator on May 29.  

In an email to the merchant bankers and investment bankers’ association AIBI on June 24, Sebi stated, “All special rights granted to shareholders under AoA, SHA or through any arrangement or agreement shall lapse on the date of listing.”

This means that the rights granted to PE players will now lapse on listing instead of being cancelled before the filing of the updated draft red herring prospectus (UDRHP) for IPO.  

“Sebi has reversed its earlier directive in line with the market feedback. Special rights now need to fall away at the listing, as opposed to UDRHP, and this will give much-needed comfort to investors,” said Manshoor Nazki, Partner, IndusLaw.

Legal representatives, investment bankers and PE players had objected to Sebi's earlier mandate, stating that the special rights should not be cancelled before listing. They had stated that unusual changes in the policies would make investments difficult in the country.

“PEs bring better governance to the listed companies and the value creation thereafter is aligned jointly with the shareholders. There is no evidence of systemic abuse of special rights by PE investors to the detriment of minority shareholders. Even if Sebi’s intent was to bring a level playing field, it is unusual to do so before minority shareholders are injected into the company prior to listing,” said a PE player on the condition of anonymity.

The market regulator has heeded the feedback and made the changes to the relief of PE investors.