SEBI Wants Better Transparency, Tightens IPO Disclosures.

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To speed up the IPO Approval Process, the market regulator has decided to seek 31 additional disclosures from companies planning to go public. On May 24, the Securities and Exchange Board of India sent letters to bankers seeking these requirements.

Problems In Current IPO Filing.

From 2024, more than 45 IPO Applications were filed. However, only 9 got approved, with the average approval time of 87 days. Nearly half of these applications were either withdrawn or rejected. SEBI’s new listing requirements contain the common information gaps that have historically led to delays in IPO Approvals.

What Are The New SEBI Guidelines for IPO?

These additional disclosure requirements contain pre-IPO placements, shareholders, previous agreements, and ESOP (employee stock ownership plan) allottees.

Under this, the Lead Managers(LMs) must:

Ensure that ESOPs are allotted only to employees.

Disclose the price and name of the shareholder in a Pre IPO Placement.

If more than 50% of supplies or revenue account for the top 10 suppliers or customers, their names must be disclosed.

Disclose details of arrangements like acquisitions, mergers, and slump sales, including valuation and any relationship with promoters or directors.

Apart from this, LMs are instructed to ensure there is no conflict between suppliers, third-party service providers, and the company or promoters.

How Does This Affect the IPO Process?

Now the companies going public will need to ensure wider transparency to meet SEBI guidelines.

This will speed up the approval process and increase investor’s trust. The average time SEBI takes to clear a Draft Herring Red Prospectus (DHRP) was 126 days in 2022 and 108 days in 2023. Until May 2024, this period was reduced to less than 3 months, as reported by the PRIME database.

What Else Can We Expect From SEBI?

After IPO filing, SEBI may request additional details from merchant bankers. Companies can file an addenda in their draft documents based on the clarifications required by the regulator. This can also mean increased paperwork for the company filing their draft prospectus.

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