Business Standard

Complaints threaten to stretch timelines for marquee issues


A slew of complaints and litigation threatens to stretch the IPO timelines for marquee issues, such as OYO and Paytm.

The markets regulator, Securities and Exchange Board of India (Sebi), takes on average a little over two months to clear a draft red herring prospectus (DRHP), an analysis of the data provided by PRIME Database shows. But there have been instances where complaints, litigation, or regulatory challenges have delayed the clearance process by a few months. For instance, the CAMS IPO took 190 days to obtain Sebi approval because of the controvers­y around the NSE shareholdi­ng. In the case of UTI Mutual Fund, the approval took 180 days amid disagreeme­nt between its major shareholde­rs.

Earlier this week, hospitalit­y start-up OYO Rooms (Oravel Stays) was at the receiving end after it filed papers for its ~8,430-crore IPO. Rival Zostel threatened to move Sebi seeking a stay on the IPO or any change in the shareholdi­ng structure. The company also faced allegation­s of inadequate disclosure­s in its DRHP. In August, after Paytm filed the DRHP for India’s largest-ever IPO, a former director of the company urged Sebi to halt its offering, claiming his stake was not being acknowledg­ed.

On one hand, it is in the interest of investors that all critical matters are highlighte­d in the public domain at the time of the IPO to help them with their investment decisions. But on the other hand, industry players claim most complaints are timed around the IPO to derail the process.

“The process of listing and especially the requiremen­ts of disclosure­s often act as an impetus for miscreants to undertake actions, which, at times, may be contrived with the intent to extort, arm-twist, or in some cases to try and jeopardise the listing by stirring up attention through claims that are engineered at the cusp of listing,” said Gaurav Mistry, associate partner, DSK Legal.

Experts say such instances complicate and delay the IPO clearance process as Sebi has to ensure public shareholde­rs are protected.

“Companies looking to access the markets by way of IPOS are sometimes hit with lawsuits and complaints from former employees, vendors, and even competitor­s, typically alleging breach of past contracts and non-payment of dues, creating uncertaint­ies for the timelines of IPOS and casting doubts over their post-listing share performanc­e. While there are several instances of mala fide intent in such lawsuits and complaints, Sebi inspects and analyses each situation on a case-to-case basis, in order to protect the interests of investors in the public markets. During this year itself, we have seen Sebi placing several high profile companies' draft offer documents in abeyance until complaints are resolved,”

said Murtaza Zoomkawala, partner, Saraf & Partners.

Currently, close to 60 DRHPS are awaiting Sebi clearance. Most firms are looking to expedite their IPO launch process to tap into the ongoing bullish sentiment. Any delay in the approval process may potentiall­y thwart the listing plans if market sentiment turns sour.

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