The Securities and Exchange Board of India (SEBI) has introduced pre-filing or confidential filing or the draft red herring prospectus (DRHP) by companies planning to go public. At present, a company planning to list its shares must file its DRHP with the SEBI.
The DRHP discloses details about the company’s business and financials to the public. Optionally, a confidential pre-filing will help businesses keep their DRHP document private till they confirm listing plans.
This pre-filing red herring prospectus (PDRHP) will not be available to the general public, but the regulator and exchanges will be able to review them. Once SEBI delivers its remarks and the company decides to launch its offering, the business will have to submit an updated draft red herring prospectus-I, which will be a public document.
“A public announcement on the filing of a PDRHP at the pre-filing stage will allay unnecessary speculation. Further, in order to streamline information in one place, it is desirable that a disclosure shall also be made on the website of the stock exchange,” read the SEBI statement explaining the decision.
The present regulatory review process virtually forces businesses to go ahead with the IPO once they file a DRHP, even if they may not be certain they will execute a timely listing successfully. Moreover, all outstanding convertibles must be converted into shares before filing the DRHP to be eligible to file one.
The proposed pre-filing framework offers much flexibility to the issuer to freeze its capital structure any time between the date of pre-filing of the PDRHP until receipt of SEBI observations, according to the regulator’s statement.
The proposed mechanism offers flexibility to change the fresh issue’s size from more than the present margin of 20% disclosed in the DRHP. Currently, changes beyond 20% require the fresh filing of a DRHP.