“The voluminous nature of the offer document may deter retail investors from reviewing such documents, thereby leading to a lack of engagement and participation in the IPO process, including providing comments on the disclosures,” Sebi said on Thursday.
The offer document typically comprises detailed disclosures across various sections such as industry overview, business, financials, pending litigations, management discussion, offer procedure and articles of association.
These sections often contain detailed legal, financial and technical information, as they provide comprehensive disclosures about all material aspects of the public issue and serve as the primary document for regulatory review and public scrutiny.
However, due to its size and complexity, key disclosures relating to the public issue – such as major risk factors, financial highlights, objects of the issue and key performance indicators – are dispersed across multiple sections, Sebi said.
The regulator said mandating a concise and standardised summary of the offer document can improve information accessibility. “It has been observed that the retail investors often rely on secondary and unregulated sources of information, such as grey market trends and unverified social media for making investment decisions. As information provided by these sources are not accurate, the same may not be a desirable input to the investors and reliance on such information is not appropriate for the orderly growth of the capital markets. The availability of focused and summarised disclosures from the issuer can reduce reliance on such sources,” it said, seeking public comments by December 4.The summary would be made available separately from the offer document. The current requirement to prepare an abridged prospectus would also be dispensed with.
PRE-IPO LOCK-IN
The regulator has also suggested relaxing the lock-in requirements for shares at the time of the IPO. The review follows feedback from market participants about challenges faced by issuers in complying with lock-in rules for pre-issue capital held by persons other than promoters, particularly in cases where pledges have been created before the IPO.
At present, rules require the pre-issue capital held by promoters and persons other than promoters to be locked in for a period. The existing system of the depositories does not allow lockin of certain shares, such as those under pledge. This creates challenges for issuers at the time of the IPO. Sebi said the current regulations provide an enabling framework for the pledge of locked-in shares held by promoters.
Further, in cases where shares held by promoters are under pledge before the IPO, the promoters with the consent of the concerned lenders, are able to ensure the release of the pledge for the purpose of initiating lock-in. It has also suggested introducing a framework to address the lock-in of pledged shares held by persons other than promoters, as well as allowing amendments to the articles of association of the issuer and mandating issuers to provide intimations to the concerned lenders.
