Tata Play, a direct-to-home platform, has become the first company to submit confidential papers to the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO). On November 29, Tata Play confidentially pre-filed its draft red herring prospectus (DRHP) with the markets regulator.
SEBI in November introduced the concept of confidential filing or pre-filing of DRHP for businesses planning to go public.
What is confidential IPO filing?
Confidential filing, an optional approach, will assist firms in keeping their DRHP confidential until their IPO plans are finalised. Their offer paperwork won't be available to the general public, but the regulator and exchanges will be able to review them. Once SEBI gives its remarks and the firm decides to launch its IPO, the company will then need to file an amended DRHP, which will be a public document.
Under the previous arrangement, any business that intends to go public must file an offer document with SEBI. This document, known as the DRHP, is required to be made publicly available and provides crucial information on the company's operations and finances.
However, a firm will be permitted to submit a registration statement for an IPO to the regulator in confidence under the confidential filing procedure, postponing the public filing until considerably closer to the actual IPO date.
The curtain of secrecy enables a business to hold back crucial information from rivals, clients, and workers until much later; in some circumstances, it even provides the opportunity to revoke a registration statement without informing the public.
What are the benefits of confidential IPO filing?
The primary benefit of this concept is that it offers businesses control over information flow and keeps sensitive information away from rival businesses. Many firms have been unable to debut their issues after receiving the SEBI approval for IPOs. This new path will assist businesses in examining listing possibilities without excessive public scrutiny.
When the issuer is prepared to apply for listing, it will make it easier to provide papers for investors to review at the proper time. By avoiding the needless publication of corporate information prior to reaching this decision, it will safeguard issuers that want to cancel their IPO aspirations.
Furthermore, companies will have the freedom to issue additional shares or obligatory convertible securities up to the SEBI observation on the initial draft. They are also permitted to modify the director, promoter, objects of the issue, etc. without having to refile. For modern businesses that can raise money privately even after filing for an IPO, this will be a huge plus.
How is it different from the traditional method of IPO filing?
Contrary to the conventional approach, which allows firms to promote their initial public offerings however they see fit, companies who choose confidential filing are only permitted to do restricted marketing in order to gauge interest from qualified institutional investors (QIBs). Only once an updated DRHP has been submitted to Sebi may extensive marketing be conducted.
Furthermore, SEBI has also extended the deadline for such IPOs since businesses will only be permitted to fully market their IPO when the revised DRHP is submitted. Unlike the standard procedure, which allows firms to conduct an IPO within 12 months of receiving a SEBI observation, the secret filing allows companies to undertake an IPO within 18 months of receiving a SEBI Observation.
A confidential filing does not always imply that investors would be kept in the dark. The regulator will have initial access to all the material currently revealed in the DRHP before it is made accessible to the general public closer to the IPO date. And the issuer must declare that company has pre-filed for an IPO even if the specifics of the offer documents will stay confidential.