Sebi looking to demystify IPO filing process for faster approval

“We are trying to bring an innovation in the market which we are calling a demystified IPO document as we think too much mystique has been created around DRHP (draft red herring prospectus) and the whole process of getting listed. It isn’t that complex,” Buch said at a Ficci event on Friday.

“We, in consultation with industry and there is a working group which is working on it, are creating a template (-based) fill-in-the-blank IPO document which says you fill in these blanks and if you find any complexity in filling it up or there is an if and but, there is a separate column in which you can articulate that complexity,” she added.

DRHP is an initial document filed with regulatory bodies by a company looking to launch an IPO or a public issue. It contains essential information about the company’s business, operations, financial performance, and prospects.

The template-based offer document, the Chairperson said, will be precise. It will be meaningful as it will contain information important for an investor to make a decision, and any variation will be explained separately, Buch said.

“It will smoothen the processing time in Sebi itself. We are hoping that we will be able to bring down the approval time even lower than what is there today and at the same time it will demystify the entire process of filing and going through a listing process,” she explained.

The new document will also make it easier for new companies waiting to list.

Buch said the regulator is focusing on the speedy clearance of applications filed by companies for raising capital, especially when markets are conducive. Sebi is working on artificial intelligence (AI)-based processing of IPO documents.

She said so far in 2024, of the 73 offer documents received for capital raising, Sebi has issued observation letters to 65 applications. Of the 65 applications, documents of 16 applications were returned while 4 applications were withdrawn.

“We could have approved 20 more applications. What came in the way was that the director of the merchant banker (to the IPO) was allotted shares of the company 2.5 months before the documents were filed or because a director of the company which has applied (for IPO) is already under investigation by Sebi for fraud in a previous IPO,” she said.

On the combo product of rights issue and preferential allotment of shares, Buch said the new product is going to be transformational as it would have the best of the rights issue and the preferential allotment of shares.

The rights issue is an offer given by the company to its existing shareholders to buy additional shares at a specific date and at a reduced price. Preferential allotment is the process of allotment of equity shares to a select group of investors on a preferential basis at a predetermined price.

Buch explained that in the rights issue, there are very few restrictions in terms of what is required to be done and also there are a lot of flexibilities, including in price.

“We are combining that flexibility with the concept that this is not a first time issue, it is an existing company, it is listed and is making all disclosures then why do we need them to make more disclosures? With a very simple document, which mentions the reason for raising money, you do rights (issue). If something (issue portion) remains unsubscribed, you can effectively do a preferential allotment without getting shareholders’ approval,” she said.

With the new combo product the entire end-to-end process can be completed in 23 days as compared to 42 days taken in preferential allotment.

“This innovative product is going to halve the time you need even as compared to the fastest route available today. This is really an expressway which we are facilitating,” she said.