In addition to outlining the declarations and confirmations that must be included in the prospectus being filed, SEBI has cautioned merchant bankers against being indifferent to disclosures made in DRHPs or repeating omissions in them.
The capital market watchdog claims that the 21 disclosures that SEBI has outlined would enable "faster processing of documents" for merchant bankers while completing DRHPs.
Investment bankers have received a warning from stock market regulator Securities and Exchange Board of India (SEBI) regarding the possibility of their public offering documents being returned unapproved if disclosures are missing. This information was provided to Moneycontrol by people with knowledge of the development.
In addition to outlining a comprehensive set of declarations and confirmations required in the draft red herring prospectus (DRHP) that is being filed, SEBI has warned merchant bankers against being callous about disclosures or repeating errors that have previously been brought to their attention.
At the time this report was filed, SEBI had not responded to an email inquiry.
Significantly, the SEBI just released a statement stating that the DRHP, a mechanism that was implemented in February of this year, might be returned in the event that the merchant banker fails.
In this respect, Moneycontrol has looked into SEBI's communication.
What's in SEBI's Communique
The Sebi announcement from February 6 said, "The offer documents and these are not in conformity... have to be dealt in terms of the SEBI circular effective February 06, 2024 and SEBI General Orders." The basis for surrendering DRHPs without receiving regulatory approval is covered in SEBI's circular.
The capital market watchdog claims that the 21 disclosures that merchant bankers must include in the DRHP are included in SEBI's email and would facilitate "faster processing of documents." Due to constant back and forth about the issue's lead managers' failure to disclose material information in the IPO prospectus, the regulator's clearance of the DRHP is often postponed.
Among other things, SEBI requires merchant bankers to declare and verify that no regulator has made any potentially significant findings or observations, and that there is no conflict of interest between the promoters as well as key management personnel (KMPs) and the issuer company's producers or third-party suppliers.
In addition, SEBI requests that lead managers reveal whether they or their associates have any direct or indirect connection to any of the company's investors and that the issuer company has complied with the Companies Act, 2013 with regard to the issuance of securities from the company's founding until the DRHP filing.
The regulator is requesting that merchant bankers separate the risk elements into internal and external categories. These categories will be determined by a number of criteria, such as financial risks and regulatory or investigative agency inquiries or probes.
Issue Managers' Remarks
According to certain merchant bankers Moneycontrol talked with, the regulator's action intends to accomplish two goals: it will expedite the IPO clearance process and guarantee that bankers take more care when submitting the DRHPs.
The CEO of a domestic merchant banking organization said, "The list of additional disclosures and confirmations has been made created based on statistical evaluation of all the recent IPOs and will actually help in getting expedited clearance for DRHPs."
"While it may seem like SEBI is adopting a hard stance, the data suggests that insufficient disclosures and, more often than not, merchant banker negligence cause delays in the DRHP clearance process. The merchant banker, who wished to remain anonymous, said that they will be more circumspect going forward due to the possibility of DRHPs being returned.
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