Tata Play files India’s first 'confidential' IPO; here’s how it’s different from normal route

Tata Play, previously known as Tata Sky, has become the first company in India to take a confidential pre-filing route for its initial public offering (IPO). Globally, countries such as the U.K., Canada, and the U.S. permit pre-filing of the offer document for review by the regulatory authority, but this mechanism is new and almost unused in India.

In November 2022, the Tata Group company filed a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) under the confidential pre-filing to launch its public offer. The direct-to-home platform got its observation letter on April 26, which implies a green signal to launch the IPO.

SEBI introduced confidential pre-filing of IPO documents in November last year. As the term suggests, the details of the preliminary documents are not shared with the public in case of confidential pre-filing, unlike in the normal route where the DRHP is publicly available after it is submitted to the SEBI. Such confidentiality provides flexibility to the companies to change the issue size, the amount of freshly issued shares or offer for sale by existing shareholders till an updated DRHP is filed. Besides, it aims to safeguard sensitive business information and also offers flexibility to the companies to decide whether to go public or not after the regulator issues its observations.

However, the DRHP is made public even in confidential IPO once the company files an updated draft red herring prospectus (UDRHP-I) with SEBI.

Under the normal IPO route, companies first file a draft prospectus with the regulator that contains regulatory disclosures, which is also hosted on the website of SEBI, lead managers and stock exchanges for at least 21 days, seeking public comments. After receiving observations from the regulator, the company incorporates changes and files final documents for approval.

Why need for an alternative mechanism?

As per the existing practice, companies exploring an IPO need to make disclosure of various sensitive information about their business in the DRHP at a time when there may not be the certainty that the IPO would be executed or when it would be executed. There remains an apprehension in the mind of an issuer that the peer competitors might take undue advantage of the information disclosed by it in DRHP. There is also a risk that if a company defers its IPO by some months due to volatility in market conditions or some other factors it may lose its recency when it re-approaches the market after a time gap.

SEBI introduced the pre-filling mechanism to protect the interests of the issuers and safeguard sensitive business information in case a company wants to call off its IPO. This optional alternative mechanism also offers advantages in terms of unnecessarily publishing of business information much prior to taking a decision as to whether a company would or when it would go for listing.

The companies are allowed to take normal or pre-filling routes to launch their public offer.  

How is confidential pre-filing different from normal route?

Here is detailed step-wise analysis of pre-filing and existing IPO routes.

Filing of offer documents

Normal: The DRHP filed with SEBI is available in the public domain.

Pre-filing: The filing of a pre-filing draft offer document with SEBI is not available in the public domain. The document is made public only after the company files an updated draft red herring prospectus with the regulator.

Validity of SEBI observation

Normal: The issue shall open within 12 months from the date of SEBI observation.

Pre-filing: The issue shall open within 18 months from the date of SEBI observation subject to filing of updated DRHP (UDRHP-I) within 16 months.

Publicity and marketing

Normal: Permitted from the date of filing of DRHP.

Pre-filing: Not permitted. Limited marketing permitted (only for Testing the waters with QIBs).

Compliance with ICDR requirements

Normal: The offer document to be in compliance with ICDR (International Centre for Dispute Resolution) Regulations (to the extent applicable).

Pre-filing: The document to be in compliance with ICDR Regulations (to the extent applicable) with flexibility/ exemption in following until receipt of SEBI’s observations.

What is the existing IPO mechanism in India?

Currently, in India, companies planning to launch an IPO is required to go through the following process:

• The company through the lead manager is required to file a DRHP with SEBI and stock exchanges.

• The DRHP containing all the disclosures is made available on the websites of SEBI, lead manager, and stock exchange for a period of at least 21 days, seeking public comments.

• Stock Exchanges are required to provide in-principle approval for listing of securities and intimate the same to SEBI. As part of the review process, SEBI seeks clarification on the DRHP from the lead manager of the IPO.

• SEBI issues its observation letter within 30 days of the receipt of satisfactory reply to the clarifications sought or receipt of in-principle approval of the stock exchange, whichever is later.

• A company can tap the market within 1 year from the date of the observation letter, by filing an updated DRHP incorporating the observations issued by SEBI. SEBI takes note of the changes made to the document.

• The company proceeds with the filing of Red Herring Prospectus (RHP) with the Registrar of Companies (RoC). It is required to make price band advertisements after RHP but at least two days before the issue opening.

• The issue is kept open for a minimum period of 3 days. Upon successful completion of the issue, the company files a prospectus with SEBI and RoC.

• Finally, the stocks are listed on domestic stock exchanges.