IPOs: From Paytm to Oyo, complaints are holding up key clearances

India is among the countries that are leading the global IPO boom this year.

According to a recent report from consultancy firm EY, 72 Indian companies had raised $9.7 billion through IPOs in the first nine months of 2021 – the highest proceeds for the period in two decades. In the whole of last year, 43 Indian firms had raised a total of $4.1 billion.

As many as 35 more companies are planning to hit the primary markets between October and December this year, aiming to raise a further $10 billion.

However, some large issues have been hit by complaints and litigation which threatens to delay their IPO timelines. Examples include digital payments giant Paytm, hospitality startup OYO and edible oil company Adani Wilmar.

Paytm filed its Draft Red Herring Prospectus with the Securities and Exchange Board of India in July but is yet to get an approval even after three months.

The company is seeking to raise up to $2.2 billion in one of the biggest stock market listings in the country that might value it at up to $25 billion.

In Paytm’s case, a 71-year-old former director, Ashok Kumar Saxena, has asked SEBI to stop Paytm’s IPO, alleging that he was a co-founder who invested in the company two decades ago but never got the shares. His complaint filed with the Delhi Police is cited under “criminal proceedings” in Paytm’s prospectus. In its response, Paytm said the complaint was an attempt to harass the company and that there was no definitive agreement for allotment of shares to Saxena.

Meanwhile, backpacker hostel company Zostel has asked SEBI to reject OYO’ application for a $1.2-billion IPO because of a legal dispute between them.

The two firms have been entangled in a legal dispute over a deal seven years ago. Under this deal OYO was to buy some of Zostel’s businesses and Zostel shareholders were to get a 7% stake in OYO.

Even though the deal fell through, Zostel claims it is entitled to the stake and has asked a Delhi court to stop OYO from changing its shareholder structure.

In a setback for OYO, a Supreme Court-appointed arbitrator ruled in favour of Zostel. OYO is now challenging the order.

Experts have said that such disputes could trigger regulatory inquiries and the approval process may be kept on hold till the complaints are resolved.

The $600-million IPO of edible oil maker Adani Wilmar is also facing a delay after SEBI in August kept the share sale in ‘abeyance’.

While the regulator did not clarify further, reports stated that this was linked to investigations in other Adani Group companies. SEBI reportedly resumed the approval process two weeks ago.

The primary issuances of Star Health Insurance and PolicyBazaar are also awaiting approval for the past two months.

An analysis of data provided by PRIME Database shows that SEBI takes a little over two months on average to clear a DRHP.

Previously, too, there have been instances of complaints and regulatory challenges delaying the IPO clearance process. For instance, the issue of mutual fund transfer agency CAMS took 190 days to obtain SEBI approval because of a controversy surrounding NSE’s shareholding in the company. In the case of UTI Mutual Fund, the approval took 180 days amid disagreement between its major shareholders.

Other IPOs that have seen lengthy approval timelines since 2017 include Likhitha Infrastructure, Barbeque Nation Hospitality, Mazagon Dock Shipbuilders and Shyam Metalics.

Some recent IPOs that got quick approval include IRCTC, Mrs Bectors Food Specialities, RailTel, Macrotech Developers and Indian Railway Finance Corporation.

Companies including OYO Rooms are expediting their IPO launch process to take advantage of the present bullish sentiment in the markets. But any delay in the approval process could potentially complicate their listing plans if market sentiment turns negative.