The New IPO route, every Company Secretary should know !

You will not be allowed to see the DRHP.

Oravel Stays, which operates Oyo on March 31, 2023, filed a draft red herring prospectus (DRHP) under a special route for an initial public offering of shares.

But Why?

Because Oyo filed the DRHP under the confidential pre - filling route under Chapter II A of SEBI (issue of capital and disclosure requirements) 2018.

Tata play (formerly Tata Sky) was the first company to file confidential DRHP in India.

But what makes it different from other routes?

Let’s take a look at this latest route brought by amendment through SEBI (issue of capital and disclosure requirements) (Fourth amendment) regulations 2022.

This chapter applies to the issue of specified securities under IPO on the main board.

Regulations that do not apply

The provisions of Chapter II shall mutatis mutandis appl in relation to IPO under chapter IIA except for anything contrary contained in Chapter IIA.

However, Regulation 8 and 15 of chapter II shall apply at the stage of filling of updated draft red herring prospectus- I(UDRHP-I)

Further as per regulation 59A(c), UDRHP-I means updated prefilled draft offer document filed with SEBI after complying with the observations issued by SEBI on such pre-filled draft offer document.

Cool general conditions about Time period:

Companies must launch their IPOs within 12 months of SEBI’s approval for their proposal or of making its final observations but that is not the case here.

As per sub regulation 4 of regulation 59E, subject to compliance with the provisions of the Companies act, 2013, a public issue may be opened within 18 months from the date of issuance of observations by SEBI under regulation 59C .

Disclosure Secrets about this Route

In terms of sub regulation 3 of Regulation 59C, the pre filled draft offer document filled prior to making an IPO i.e. under regulation 59C (1) shall not be available in the public domain.

But one disclosure shall be made and that is given under sub regulation 5 of regulation 59C.

As per sub regulation 5 of regulation 59C, the issuer shall within 2 days of pre-filling the draft offer document, make a public announcement in

·??????One English national daily newspaper with wide circulation,

·??????One Hindi national daily newspaper with wide circulation, and

·??????One regional language daily newspaper with wide circulation at a place where the registered office of the issuer is situated,

Disclosing the fact of filing of pre-filling of draft offer document without providing any other details in relation to the intended issue:

Provided that the issuer shall state in the public announcement that the pre-filling of draft offer document shall not necessarily mean that the issuer shall undertake the IPO.

Can issuer interact with qualified institutional buyers (QIB) ?

As per sub regulation 1 of regulation 59D, an issuer may interact with QIBs for limited marketing of the intended issue from the time of pre-filing the draft offer document till the board issues any observations on such pre-filled draft offer document. However in terms of sub regulation 2, such interaction should be restricted to the information contained in the pre-filled draft offer document.

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Cool general conditions about conversion:

In terms of sub regulation 1 of regulation 59E, an issuer opting for IPO through pre-filing the draft?offer document in terms of the provisions of chapter IIA shall till the Board recommends or issues observation?on the pre-filled draft?offer document, be permitted the following :

(a) Existence of outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares of issuer.

Provided that it shall be mandatorily be converted before the Board recommends any changes or issues observation on the pre-filled draft offer document.

However the following are permitted even after issuance of observations by SEBI on pre-filled draft?offer document:

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?i.??Existence of outstanding options granted to employees whether currently an employee or not pursuant to an employee stock option scheme.

?ii.?Existence of fully paid-up outstanding convertible securities which are required to be converted on or before the date of filing of the red herring prospectus (in case of book-built issues) or the prospectus (in case of fixed price issues) as the case may be;?

(b)??Issue of specified securities.

(c)?Issue such convertible securities that are mandatorily and compulsorily convertible into equity shares at the time of filing of offer document , provided the details for such securities are given in the updated draft red herring prospectus -I in relation to the maximum number of shares in which such convertible?securities?shall be converted.

These were the major insights about this great regulation. Hope these small efforts were helpful.

With warm regards,

Keep Smiling,

Saeed Shaikh

FOOTNOTES

1.https://www.sebi.gov.in/legal/regulations/nov-2022/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-fourth-amendment-regulations-2022_65407.html

2.The Economic times , Vol 63, no 23, Saturday 1, April 2023.