In September, the Securities and Exchange Board of India (Sebi) announced it would be introducing a special confidential filing framework through which companies will be able to file offer documents privately with the market regulator and seek its comments. They needn’t file any public offer document until the actual launch of the IPO. Sebi will soon publish the final guidelines on this framework.
Current Sebi rules say that a company is not eligible to file an IPO document if there are any outstanding convertible securities. For the companies choosing the confidential filing route, this rule may be relaxed and convertible securities need to be converted into regular equity shares by the time Sebi gives its final observations, said people cited above.
An email sent to Sebi seeking comments remained unanswered.
“Companies would get additional five-six months to convert the pending warrants and in market terms, a lot of things may change during this span,” said a person cited above. “This will allow companies to convert the warrants only if they are serious about going ahead with the IPOs.”
Estimates suggest around 150 companies have filed their offer documents in the past four years and around 60 have deferred or cancelled IPO plans on account of various factors, including market volatility.
The changes may benefit the start-up and new-age company ecosystem significantly as the issuance of warrants is a common practice in the space, say regulatory experts. Private equity funds have purchase contracts with the companies, and the stake is bought in tranches. So, initially, the fund is allotted warrants for the total number of shares the investor wants to purchase in the company and the investor pays only a portion of the total consideration during the issuance of warrants. Over the time period specified in the contract, the fund converts all the warrants into shares.
“There is concern that after a company converts all the pending warrants, it has to wait for a few months for approvals during which market conditions may change or any unforeseen event may happen,” said another person cited above.
“The tweaks will provide flexibility to the issuers to freeze their capital structure any time between the confidential IPO-document filing and receipt of Sebi observations.”
Companies filing confidential offer documents will be prohibited from advertising or marketing the share sale amongst retail investors until they file the public offer document.